Trouble Deepens for WazirX in India as ED Raids Director & Freezes Bank Accounts

On August 5, the Enforcement Directorate (ED) froze the bank account of one of the directors of Zanmai Lab Private Ltd, the operator of the Indian cryptocurrency exchange WazirX.

It is reported that bank assets worth Rs 64.67 crores (over $8 million) were frozen after the agency conducted a raid in Hyderabad.

Binance-backed WazirX has been under investigation

The news comes soon after Pankaj Chaudhary, Minister of State for Finance, confirmed in the Parliamentary Upper House that the Directorate of Enforcement is looking into claims that a total of Rs 2,790 crore (over $350 million) was laundered through the Binance-backed exchange in two cases.

This time around, the WazirX Director was reportedly charged by the central agency for aiding rapid lending app companies in the purchase and transfer of virtual cryptocurrency assets used to launder illicit money.

NDTV reported that the raids were conducted on Sameer Mhatre, Co-Founder and Chief Technology Officer of the platform, with ED adding “He has complete remote access to the database of WazirX, but he is not providing the details of the transactions.”

This essentially means that the raid was conducted on the director’s premises under the Prevention of Money Laundering Act, 2002 (PMLA) after his non-cooperation with the agency.

Be[In]Crypto had also cited reports earlier that the ED is investigating the platform on two cases under the provisions of the Foreign Exchange Management Act, 1999 (FEMA). While in one case, the platform is being probed for allowing foreign users to exchange one cryptocurrency for another on its own exchange as well as by using transfers from other foreign exchanges. In another case, transactions “cloaked in mystery” between Binance and WazirX are being investigated. 

The allegation of aiding illicit loan apps to launder money

Another local report quoted the Enforcement Directorate as saying: “When police and ED started crackdown, the loan app firms used the cryptocurrency route to take money out of the country. Most of the money is transferred to Hong Kong through crypto assets via WazirX. We found evidence regarding the transfer of money to crypto assets. We have frozen more than Rs 100 crore crypto assets of WazirX.”

WazirX allegedly assisted 16 accused fintech firms in using the cryptocurrency channel to launder criminal proceeds.

“By encouraging obscurity and having lax Anti-Money Laundering (AML) norms, it has actively assisted around 16 accused fintech companies in laundering the proceeds of crime using the crypto route. Therefore, equivalent movable assets to the extent of Rs 64.67 crore lying with WazirX were frozen under PMLA, 2002,” the central agency said.

And now the investigating agency is also reported to be tracking Indian NBFCs and fintech partners of rapid loan apps that operate against the central bank guidelines. These illegal applications were found to be operating in contravention of RBI regulations to extort excessive interest rates and abuse personal information collected from loan applicants.

“Various fintech companies backed by Chinese funds could not get an NBFC license from RBI for carrying out lending business. So they devised the MoU route with defunct NBFCs to piggyback on their license,” the agency found.

“It is seen that maximum amount of funds were diverted to WazirX exchange and the crypto assets so purchased have been diverted to unknown foreign wallets,” the ED note added.

Transactions between Binance and WazirX still unclear

That said, ED is also reportedly scrutinizing the earlier statements by the exchange and its co-founder. The central agency pointed out, “Earlier, their managing director Nischal Shetty had claimed that WazirX is an Indian exchange that controls all the crypto-crypto & INR-crypto transactions and only has an IP & preferential agreement with Binance,”

“But now, Zanmai claims that they are involved in only INR-crypto transactions, and all the other transactions are done by Binance on WazirX. They are giving contradictory & ambiguous answers to evade oversight by Indian regulatory agencies,” a CNBC report quoted the ED.

While further investigation is underway, a statement from the exchange is awaited.

The last tweet earlier today from the company’s managing director, Nischal Shetty, outlined how decentralization solves the problem of monopoly by centralized institutions.

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