ED Targets WazirX With Show Cause Notice: Why The Crypto Exchange Has Fell On The Radar Of The Federal Agency

Key highlights

  • The notice also stated that the accused Chinese nationals (who were involved in the illegal online betting case) laundered nearly 57 billion rupees by converting those sums into Tether or USDT and then transferring them to Binance wallets overseas transferred
  • In September 2019, Binance, the Chinese-owned global cryptocurrency exchange and blockchain ecosystem, announced the acquisition of WazirX, one of India’s largest exchanges
  • Binance’s acquisition of WazirX also resulted in the addition of a feature that allows users to instantly transfer funds from their WazirX wallets to Binance wallets

New Delhi: The WazirX cryptocurrency exchange said it had not received a complaint from the Directorate of Enforcement, adding that it “complies with all applicable laws”. It stated that it would cooperate with any investigation and assured users that their “funds are completely safe with WazirX”.

The company’s statement was prompted after a statement by the Enforcement Directorate that WazirX and its directors, Nischal Shetty and Sameer Hanuman Mhatre, under the Foreign Management Act, 1999 (FEMA), had issued a flagship notice of $ 2,790.74 billion in cryptocurrency transactions. The investigation, the ED said, is part of an ongoing investigation into alleged money laundering carried out by Chinese-owned illegal online betting applications.

The ED has claimed that WazirX has allowed the exchange of crypto tokens held in pooled wallet accounts to other exchanges that can be held by individuals in overseas locations. It found that the crypto exchange had not documented these transactions in accordance with FEMA’s prescribed rules for foreign currency transfers or followed KYC procedures for non-WazirX wallets. Other documents such as addresses, transaction purpose and IP addresses of other wallet users were also not collected, it said.

“With this, WazirX clearly violates the basic mandatory preventive standards for combating money laundering and the fight against the financing of terrorism and the FEMA guidelines, which also apply to virtual wallets. Cryptocurrencies have tangible value and are used as a “payment instrument” and are therefore related to money in the sense of FEMA, ”the ED statement said.

The notice also said that the defendant Chinese nationals (who were involved in the illegal online betting case) laundered nearly 57 billion rupees by converting those sums into tether or USDT and then transferring them to Binance wallets overseas had. It questioned WazirX’s accounting and due diligence obligations, claiming that “as part of the onboarding process” [WazirX] Simply collect a “selfie photo”, a PAN and an aadhaar scan image. There is no physical review and proper due diligence on clients. ”Oddly enough, she also added that a statement had been obtained from WazirX’s managing director contradicting WazirX’s subsequent allegation that they had not received the notification about the show.

In September 2019, Binance, the Chinese-owned global cryptocurrency exchange and blockchain ecosystem, announced the acquisition of WazirX, one of India’s largest exchanges. Since then, India’s cryptocurrency drive has been littered with obstacles, largely due to an unclear regulatory environment, but in April 2021, WazirX’s daily trading volume exceeded $ 200 million, suggesting a growing affinity within the country for cryptocurrencies.

However, Binance’s acquisition of WazirX also resulted in the addition of a feature that allows users to instantly transfer funds from their WazirX wallets to Binance wallets. Since this is an internal exchange, these crypto token transactions are reportedly not recorded on the blockchain. The ED’s notice said, “It [WazirX] has a preferential agreement with Binance and all transactions between the customers of the two exchanges are not recorded in the blockchain.