The Enforcement Directorate (ED) has issued Show Cause Notice to the popular crypto exchange WazirX regarding contravention of FEMA (Foreign Exchange Management Act, 1999) for transactions involving cryptocurrencies worth shy of three thousand crores.
The agency has initiated a FEMA investigation based on an ongoing money-laundering investigation into Chinese owned illegal online betting applications.
WazirX is registered under the company named Zanmai Labs Pvt Ltd and was incorporated in December 2017. It was started as a domestic cryptocurrency startup, and its directors Nischal Shetty and Hanuman Mhatre, have been given the notice issued by the agency after the completion of the investigation.
ED said in an statement:
“During the course of the investigation, it was seen that the accused Chinese nationals had laundered proceeds of crime worth ₹57 Crore approximately by converting the INR deposits into Crypto-currency Tether (USDT) and then transferring the same to Binance (exchange registered in the Cayman Islands) Wallets based on instructions received from abroad.”
Global cryptocurrency exchange Binance had acquired WazirX in 2019.
ED alleges that WazirX provides users with a wide range of transactions with cryptocurrencies like exchange from cryptos to INR and vice-versa; exchange of cryptos; P2P transactions, and even transfer/receipt of cryptocurrency held in its pool accounts to wallets of other exchanges.
These exchanges could be held by foreigners in foreign locations.
In the investigation, ED’s claimed that they’d discovered a significant difference in money transfer between WazirX’s pool accounts and Binance accounts. They’ve claimed that WazirX received ₹880 crores worth of cryptocurrencies from Binance accounts and transferred out ₹1400 crore worth of cryptocurrencies to the same accounts.
They’ve added that these transactions aren’t available on the blockchain for any audit or investigation.
They concluded with the allegation that WazirX clients could transfer ‘valuable’ cryptocurrencies to any person irrespective of its location without any personal documentation, making it a safe haven for users looking for money laundering and other illegitimate activities.