ED freezes Rs. 64 Cr of WazirX cryptocurrency exchange

HYDERABAD: The Directorate of Enforcement (ED) has searched the Director of WazirX Crypto-Currency Exchange and has frozen its bank assets worth Rs 64.67 crore on the charges of assisting accused instant loan App companies in laundering of fraudulent money via purchase and transfer of virtual crypto assets.

The ED, in a statement on Friday said, it was conducting money laundering investigation against a number of Indian non-banking finance companies (NBFCs) and their fintech partners for predatory lending practices in violation of the RBI guidelines and by using tele-callers who misuse personal data and use abusive language to extort high interest rates from the loan takers.

Various fintech companies backed by Chinese funds could not get NBFC license from RBI for carrying lending business. So they devised the MoU route with defunct NBFCs to piggyback on their license.

After the investigation began, many of these fintech Apps had shut shop and diverted away the huge profits earned using the above modus operandi. While doing fund trail investigation, ED found that large amount of funds were diverted by the fintech companies to purchase Crypto assets and then launder them abroad. These companies and the virtual assets were untraceable at the moment. Summons were issued to the Crypto-exchanges. It is seen that maximum amount of funds were diverted to WazirX exchange and the crypto-assets so purchased had been diverted to unknown foreign wallets.

During ED investigation, it was observed that:

Zanmai Labs Pvt Ltd - the company owning WazirX Crypto Exchange - had created a web of agreements with -- Crowdfire Inc. USA, Binance (Cayman Islands), Zettai Pte Ltd Singapore -- to obscure the ownership of the crypto exchange. Earlier, their Managing Director Mr Nischal Shetty had claimed that WazirX is an Indian Exchange which controls all the crypto-crypto and rupee-crypto transactions and only had an IP & preferential agreement with Binance.

But now, Zanmai claimed that they were involved in only rupee-crypto transactions, and all the other transactions were done by Binance on WazirX. They were giving contradictory and ambiguous answers to evade oversight by Indian regulatory agencies.

* WazirX works from a Cloud based software (@AWS Mumbai), all employees work from home, the registered office is a 2 Chair co-working Wework space, and all crypto-crypto transactions are controlled by Binance {which is again without any known office, any known employee and rarely responds to queries on legal@binance.com}.

Despite giving repeated opportunities, WazirX failed to give the crypto transactions of the suspect fintech APP companies and reveal the KYC of the wallets. Most of the transactions are not recorded on the blockchain also.

* WazirX informed that prior to July 2020, they did not even record the details of the bank account from which funds were coming into the exchange to purchase crypto assets. No physical address verification was done. There was no check on the source of funds of their clients. No EDD is done. No STRs were raised.

Because of the non-cooperative stand of the Director of WazirX exchange, a search operation was conducted under PMLA on August 3 and it was found that Sameer Mhatre, Director WazirX, had complete remote access to the database of WazirX, but despite that he is not providing the details of the transactions relating to the crypto assets, purchased from the proceeds of crime of Instant loan App fraud. The lax KYC norms, loose regulatory control of transactions between WazirX & Binance, non-recording of transactions on Blockchains to save costs and non recording of the KYC of the opposite wallets had ensured that WazirX was not able to give any account for the missing crypto assets. It had made no efforts to trace these crypto assets. By encouraging obscurity and having lax AML norms, it has actively assisted around 16 accused fintech companies in laundering the proceeds of crime using the crypto route. Therefore, equivalent movable assets to the extent of Rs. 64.67 Crore lying with WazirX were frozen under PMLA, 2002.

Further investigation is going on.