The Enforcement Directorate (ED) on Friday said it has issued a show-cause notice to the country’s largest cryptocurrency exchange for transacting over Rs 2,790 crore in alleged violation of the Foreign Exchange Management Act (FEMA). Mumbai-headquartered WazirX is a domestic crypto currency and bitcoin exchange start-up registered under the company name Zanmai Labs Pvt Ltd which was incorporated in December 2017.
Exchange (WazirX), the company and directors Nischal Shetty and Sameer Hanuman Mhatre have been named in the notices issued by the central probe agency under various sections of FEMA. The exchange and its promoters denied any wrongdoing and said they are “in compliance with all applicable laws”.
The ED issued a statement saying that it stumbled upon the exchange’s transactions during an ongoing money-laundering probe into illegal online betting applications “owned by Chinese”. The ED said the show cause notice is for transactions worth Rs 2,790.74 crore.
The exchange’s CEO Shetty also said on Twitter that WazirX has not yet received any show cause notices from the ED as reported in media reports. He posted on his handle, “WazirX is in compliance with all applicable laws. We go beyond our legal obligations by following Know Your Customer (KYC) and Anti Money Laundering (AML) procedures and as and when required, Always provide information to law enforcement officers.” . He added: “We have been able to trace all users on our platform with official identifying information.”
“Should we get a formal communication or notice from the ED, we will fully cooperate in the investigation,” Shetty said. In its statement, the ED described its investigation in detail as “It was observed that the accused Chinese nationals laundered the proceeds of crime of about Rs 57 crore by converting Indian Rupee (INR) deposits into cryptocurrency Tether (USDT)”. And then it was transferred to Binance (the exchange registered in the Cayman Islands) wallet based on the instructions received from abroad,” it said.
Binance is considered a market leader in this domain and acquired WazirX in 2019. “WazirX allows a wide range of transactions with cryptocurrencies (CC), including their exchange with INR and vice versa, exchange of CCs, person-to-person (P2P) transactions and even Transfer/receipt cryptocurrencies held in their pool accounts to wallets of other exchanges, which can be held by foreigners in foreign locations.”
WazirX, it alleged, does not collect the required documents in clear violation of basic mandatory Anti-Money Laundering (AML) and Financing of Terrorism (CFT) norms and FEMA guidelines. “In the period of investigation, users of WazirX, through their pool account, have received incoming cryptocurrency worth Rs 880 crore from Binance accounts and transferred cryptocurrency worth Rs 1,400 crore to Binance accounts.
“None of these transactions are available on the blockchain for any audit or investigation,” the ED claimed. It found that the WazirX client can transfer “valuable” cryptocurrencies to any person regardless of his location and nationality “without” any proper documentation, making it an opportunity for users seeking money laundering and other illegitimate activities. becomes a safe haven. Was accused.
Official sources said that after an investigation into these alleged violations and as a violation of FEMA, a show cause notice was issued to the company.
The government has said that it is ready to evaluate and explore new technologies such as cryptocurrencies to improve governance. The government has said that a bill in this regard could be introduced in Parliament and incorporate recommendations made by a high-level Interior Ministerial Committee on Digital Currencies.