The Enforcement Directorate (ED) issued a show cause notice to WazirX, the largest crypto exchange in India for transactions worth over Rs 2,790 crore in alleged violation of the Foreign Exchange Management Act (FEMA). A notice was sent to the popular cryptocurrency exchange and its directors Nischal Shetty and Sameer Mhatre “for contravention of the Foreign Exchange Management Act (FEMA), 1999,” ED said.
“ED has issued Show Cause Notice to WazirX crypto-currency Exchange for contravention of FEMA, 1999 for transactions involving crypto-currencies worth Rs 2790.74 crore,” the agency said on Twitter.
ED initiated the investigation on the basis of an ongoing money laundering probe into Chinese-owned “illegal” online betting applications, law enforcement agency 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 Cayman Islands) Wallets based on instructions received from abroad,” it said. Binance 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 agency said in a statement.
WazirX 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, ED said.
“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 notice was sent following the investigation of these alleged violations and as stated to be contravention of the FEMA, official sources told news agency PTI.
The Reserve Bank of India (RBI) had specifically highlighted certain provisions of law while asking banks to exercise caution. The Union government earlier said that it was open to evaluate and explore new technologies like cryptocurrencies for improving governance.