The Enforcement Directorate on Friday said it has issued a show-cause notice to the country’s largest cryptocurrency exchange for undertaking transactions worth over Rs 2,790 crore in alleged violation of the Foreign Exchange Management Act (FEMA).
, registered under the company named Zanmai Labs Pvt Ltd, was incorporated in December 2017 as a domestic cryptocurrency startup, and its directors — Nischal Shetty and Hanuman Mhatre — along with the company, have been named in the notice issued by the central probe agency after completion of the investigation.
The agency issued a statement saying that it stumbled upon the transactions of the company during an ongoing money laundering probe into the “Chinese-owned” illegal online betting applications.
The show-cause notice is for transactions worth Rs 2,790.74 crore, the ED said.
“It was seen that the accused Chinese nationals had laundered proceeds of crime worth about Rs 57 crore by converting Indian Rupee (INR) deposits into cryptocurrency tether (USDT) and then transferred it to Binance (exchange registered in the Cayman Islands) Wallets based on instructions received from abroad,” it said.
Binance is considered a market leader in this domain and had 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 of crypto currency held in its pool accounts to wallets of other exchanges, which could be held by foreigners in foreign locations,” the ED alleged.
WazirX, it alleged, does not collect the requisite documents in clear violation of the basic mandatory anti-money laundering (AML) and combating financing of terrorism (CFT) norms and also FEMA guidelines.
“In the period under investigation, users of WazirX via its pool account, have received incoming cryptocurrency worth Rs 880 crore from Binance accounts and transferred out 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 was found that WazirX clients could transfer ‘valuable’ cryptocurrencies to any person irrespective of its location and nationality “without” any proper documentation whatsoever, making it a safe haven for users looking for money laundering and other illegitimate activities, the agency alleged.
The show-cause notice was issued to the company, following the investigation of these alleged violations and as stated to be in contravention of the FEMA, official sources said.
The Indian government has said that it was open to evaluate and explore new technologies like cryptocurrencies for improving governance.
A Bill in this regard could be introduced in the Parliament and recommendations made by a high-level internal ministerial committee on digital currencies could be included, the government has said.
