WazirX Faces ED Probe for Alleged Money Laundering of Rs 2,800 Crore

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Key Takeaways:

  • ED alleges that WazirX operated by Zanmai Labs Private Limited in India was using the walled infrastructure of Cayman Island-based exchange Binance.
  • ED is probing two cases related to cryptocurrency against WazirX under the provisions of the Foreign Exchange Management Act, 1999 (FEMA). 

On 2nd August, the Indian Government announced that Enforcement Directorate(ED) is investigating alleged money laundering of Rs 2,790 crore through crypto exchange WazirX.

“A Show Cause Notice (SCN) has been issued under the provisions of FEMA against WaxirX for allowing outward remittance of crypto assets worth ₹2790 Crore to unknown wallets,” minister of state for finance Pankaj Chaudhary said. The ED is currently probing two cryptocurrency-related cases against WazirX under the Foreign Exchange Management Act, 1999 (FEMA) provisions.

Under one of these cases, Chaudhary states that WazirX, operated by Zanmai Labs Private Limited in India, was using the walled infrastructure of Cayman Island-based exchange Binance. He further claims that all crypto transactions between these two exchanges were not even being recorded on the blockchains and were “therefore cloaked in mystery.”

 The other case probed by ED includes allegations of WazirX allowing foreign users’ requests to convert one crypto into another on its own platform as well by using transfers from third-party exchanges, namely FTX, Binance, etc.

Last month, ED sent the show-cause notice to WazirX after it found irregularities while probing money laundering by operators of Chinese-owned illegal betting apps. Following this, WazirX issued a statement claiming that it goes beyond its way to comply with KYC and Anti-Money Laundering processes.

In July, ED said that its investigation revealed WazirX users via its pool account had received incoming cryptocurrencies worth around Rs 880 crore from Binance accounts and transferred out Rs 1,400 crore of cryptocurrencies through the parent’s accounts.

“WazirX does not collect the requisite documents in clear violation of the basic mandatory anti-money laundering and combating of financing of terrorism precaution norms and FEMA guidelines,” the ED said.

Binance acquired WazirX in 2019. In the past year, WazirX has come under the media limelight for various reasons. Its co-founders, Nishal Shetty, and Siddharth Menon were reported to have moved to Dubai with their families back in April this year due to the new crypto taxation regime in India. Before that, the executives had also distanced themselves from the platform’s daily operations.

The Indian government has recently been doubling down on crypto firms suspicious of engaging in money laundering. The Minister of State of Finance Chaudhary is also not a fan of crypto. He said cryptocurrencies and non-fungible tokens are, by definition, borderless and require international collaboration to prevent regulatory arbitrage. Adding on, Chaudhary stated that any legislation for regulation or banning the possession of and trade in such a borderless sector can be effective only after significant international collaboration on evaluation of the risks and benefits and evolution of common taxonomy and standards.

The ED had also increased its scrutinization of crypto firms. The latest ED probe finding accuses India’s top crypto exchanges of facilitating transactions from other countries, including Brazil, the US, and Germany, on their platform without complying with know-your-customer (KYC) rules and anti-money laundering norms as prescribed under the foreign exchange (forex) rules.

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Saniya Raahath
Saniya Raahath

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