The Enforcement Directorate (ED) on Friday said it has frozen bank deposits worth Rs 64.67 crore of India’s leading cryptocurrency exchange WazirX as part of its ongoing money laundering probe against some fraudulent smartphone-based loan dishing apps “backed” by Chinese funds. . The federal agency said it raided Sameer Mhatre, director of Zhanmai Lab Pvt Ltd (which owns WazirX) on August 3 because he was not seeking information and was “uncooperative”.
The ED issued a statement and said the exchange and its officials were “giving conflicting and ambiguous answers to evade the scrutiny of Indian regulatory agencies”. The agency said several fintech companies involved in “violent lending” through mobile apps in the country “diverted maximum funds to the WazirX exchange and the crypto-assets purchased thereby have been diverted to unknown foreign wallets”.
The ED has framed at least four charges against WazirX for exhibiting uncooperative behavior that forced it to hit a wall in its probe against the menace of instant loan apps. Zanmai Labs Pvt Ltd to Crowdfire Inc. It alleged that the USA, Binance (Cayman Islands), Zettai Pte Ltd Singapore created a web of agreements to “obfuscate” ownership of the crypto exchange (WazirX). “Their Managing Director Mr. Nischal Shetty claimed that WazirX is an Indian exchange that controls all crypto-crypto and inR-crypto transactions and has an IP and priority agreement only with Binance.” “But now, Zanmai claims that they only engage in inr-crypto transactions and all other transactions are done on WazirX through Binance,” ED said.
It said WazirX operates from cloud-based software (@AWS Mumbai) and all employees work from home and the registered office is a two-chair collaboration space. “All crypto-to-crypto transactions are regulated by Binance, which again has no known office, no known employees and rarely responds to questions at [email protected],” ED said.
The agency alleged that despite repeated opportunities, WazirX “failed to provide crypto transactions of suspected fintech app companies and disclose KYC of wallets.” “Most transactions are not even recorded on the blockchain,” it said. WazirX informed that before July 2020, it did not even record the details of the bank account from which funds were coming to the exchange to buy crypto assets and no physical address was verified, the ED said. “The source of funds of their clients is not checked. No EDD (Enhanced Customer Due Diligence) is done. No STRs (Suspicious Transaction Reports) are raised,” the ED charged.
Mhatre had full remote access to WazirX’s database, but even so he did not provide details of transactions related to crypto assets purchased through the instant loan app fraud. “Lax KYC rules, lax regulatory control of transactions between WazirX and Binance, non-recording of transactions on blockchain to save costs and non-recording of KYC of opposite wallets have ensured that WazirX cannot account for any missing crypto assets,” ED said.
No attempts are made to trace these crypto assets. And by not complying with AML (Anti-Money Laundering) regulations, it (WazirX) has actively assisted around 16 accused fintech companies in laundering proceeds of crime using crypto channels, it said. “Therefore, movable assets equivalent to Rs 64.67 crore belonging to WazirX were frozen under PMLA,” it said.
The ED Instant Loan app is investigating alleged fraud cases and has said that several NBFCs (non-banking financial companies) and their fintech partners are indulging in predatory lending practices in violation of RBI guidelines and using tele-callers who misuse personal data. and use slang to charge high interest rates from borrowers. Various fintech companies, backed by Chinese funds, could not get NBFC licenses from the RBI to do lending business and so they made way for MoUs with defunct NBFCs to piggyback on their licences. The ED said that while its criminal investigation under the Anti-Money Laundering Act is underway, many of these fintech apps have shut shop and diverted their huge profits using the above methods.
“While investigating the fund trail, the ED found that fintech companies diverted huge funds to buy crypto assets and later launder them abroad. These companies and virtual assets are currently untraceable,” it said. WazirX had received a show-cause notice for Rs 2,790 crore from the ED last year for alleged violations of the Foreign Exchange Management Act (FEMA).
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