Money & Banking

ED issues show cause notice to WazirX, directors under FEMA

Our Bureau Mumbai | Updated on June 12, 2021

Not received any notice; will cooperate in any investigation: CEO Nischal Shetty

The Enforcement Directorate has issued a show cause notice to cryptocurrency exchange Zanmai Labs Pvt Ltd, known as WazirX, and its Directors Nischal Shetty and Sameer Hanuman Mhatre under the Foreign Exchange Management Act, 1999 for transactions involving cryptocurrencies worth ₹2,790.74 crore.

In a statement, the ED said it has initiated FEMA investigation on the basis of the ongoing money laundering investigation into Chinese-owned illegal online betting applications.

Also read: Leading crypto exchanges scout entry into India despite potential ban

During the course of the investigation, it was seen that the accused Chinese nationals had laundered proceeds of crime amounting to about ₹57 crore by converting INR deposits into cryptocurrency Tether (USDT) and then transferring the same to Binance (exchange registered in Cayman Islands) Wallets based on instructions received from abroad.

“WazirX allows wide range of transactions with cryptocurrencies including their exchange into Indian rupees and vice-versa; exchange of cryptocurrencies; Person to Person (P2P) transactions; and even transfer and receipt of cryptocurrency held in its pool accounts to wallets of other exchanges which could be held by foreigners in foreign locations,” ED said.

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, it further said.

In the period under investigation, users of WazirX, through its pool account, received incoming cryptocurrency worth ₹880 crore from Binance accounts and transferred out cryptocurrency worth ₹1,400 crore to Binance accounts.

None of these transactions are available on the blockchain for any audit or investigation, the ED said, adding that it was also found that customers of WazirX could transfer ‘valuable’ crypto-currencies 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 or other illegitimate activities.

Nischal Shetty, CEO and Founder, WazirX, however, said the company is yet to receive any show cause notice from the Enforcement Directorate.

“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 will fully cooperate in the investigation,” he said in a statement.

Concerns over KYC and money laundering have been raised with regard to cryptocurrencies globally. The circular by the Reserve Bank of India on May 31 had also asked banks to continue to carry out customer due diligence processes in line with regulations governing standards for KYC, AML, CFT and obligations of regulated entities under Prevention of Money Laundering Act, 2002.

Most cryptocurrency exchanges in the country say that they follow due diligence for KYC and AML.

Published on June 11, 2021

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