Agency sends notice over transactions worth ₹2,790.74 crore.
The Enforcement Directorate has issued a show cause notice to crypto-currency exchange Zanmai Labs Private Limited (WazirX) and its directors, Nischal Shetty and Sameer Hanuman Mhatre, under the Foreign Exchange Management Act (FEMA) for transactions involving digital currencies worth ₹2,790.74 crore.
The agency has initiated an inquiry under the FEMA on the basis of its findings in the ongoing money laundering investigation into illegal online betting applications owned allegedly by Chinese nationals.
According to the ED, it found that the accused Chinese nationals had laundered proceeds of crime worth about ₹57 crore by converting the funds into ‘Tether’ crypto-currencies and then transferring the same to Binance, an exchange registered in Cayman Islands, and wallets based on instructions received from abroad.
The agency said WazirX allowed a wide range of transactions with crypto-currencies, including their exchange with Indian currency and vice-versa; exchange of crypto-currencies; person-to-person transactions; and even transfer/receipt of crypto-currencies held in its pool accounts to the wallets of other exchanges that could be held by foreigners in overseas locations.
“WazirX does not collect the requisite documents, in clear violation of the basic mandatory Anti Money Laundering (AML) and Combating of Financing of Terrorism (CFT) precaution norms and FEMA guidelines. In the period under investigation, users of WazirX, via its pool account, have received crypto-currencies worth ₹880 crore from Binance accounts and transferred out crypto-currencies worth ₹1,400 crore to Binance accounts,” said the ED.
None of the transactions in question was available on the blockchain for any audit or investigation, as alleged.
“It was found that the WazirX clients could transfer ‘valuable’ crypto-currencies to any person irrespective of their location and nationality, without any proper documentation whatsoever, making it a safe haven for users looking for money laundering and other illegitimate activities,” it said.
In a statement to The Hindu, WazirX Founder and CEO Nischal Shetty said, “WazirX is yet to receive any show cause notice from the Enforcement Directorate as mentioned in today’s media reports. 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) processes and have always provided information to law enforcement authorities whenever required. We are able to trace all users on our platform with official identity information. Should we receive a formal communication or notice from the ED, we’ll fully cooperate in the investigation.”
(Update: This story has been updated with comments from WazirX Founder and CEO Nischal Shetty.)