ED conducts raids on director of WazirX crypto exchange, freezes assets worth Rs.64 crore
The Enforcement Directorate (ED) on Friday said it has frozen Rs.64.67 crore worth of bank deposits of one of India’s prominent cryptocurrency exchanges WazirX as part of an ongoing money laundering probe against some fraud smartphone-based loan dishing apps backed by Chinese funds. ED said it conducted raids against Sameer Mhatre, a director of Zanmai Lab Pvt Ltd (which owns WazirX) on August 3 as he was not forthcoming with information being sought from him and was “non-cooperative”.
Mumbai-based crypto exchange WazirX was on ED’s radar for the past year and got an Rs.2,790 crore worth of show cause notice from the ED for alleged contravention of the Foreign Exchange Management Act (FEMA). The dubious firm was targeting people through social media promising high returns for the investments. The company had even engaged many social media influencers and even politicians to post favorable posts to get public trust.
The ED issued a statement and said the exchange and its executives were “giving contradictory and ambiguous answers to evade oversight by Indian regulatory agencies”. The agency said it found that a number of fintech companies involved in “predatory lending” through mobile apps in the country “diverted maximum amounts of funds to WazirX exchange and the crypto-assets so purchased have been diverted to unknown foreign wallets“.
The ED has charged WazirX on at least four counts of displaying non-cooperative behavior that forced it to hit a wall in the investigation against the menace of instant loan apps. Zanmai Labs Pvt Ltd has created a web of agreements with Crowdfire Inc. USA, Binance (Cayman Islands), and Zettai Pte Ltd Singapore to “obscure” the ownership of the crypto exchange (WazirX), it alleged.
“Their Managing Director Mr. Nischal Shetty had claimed that WazirX is an Indian exchange that controls all the crypto-crypto and INR-crypto transactions and only has an IP and 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,” the ED said.
The agency said WazirX works from a cloud-based software (@AWS Mumbai) and all employees work from home and the registered office is a two-chair coworking space. “All crypto-crypto transactions are controlled by Binance, which is again without any known office, any known employee and rarely responds to queries on firstname.lastname@example.org,” the ED said. The agency alleged that despite giving repeated opportunities, WazirX “failed to give the crypto transactions of the suspect fintech app companies and reveal the KYC of the wallets.”
“Most of the transactions are not recorded on the blockchain also,” it said. WazirX informed that prior to July 2020, they did not even record the details of the bank account from which funds were coming into the exchange to purchase crypto assets and that no physical address verification was done, the ED said. “There is no check on the source of funds of their clients. No EDD (enhanced customer due diligence) is done. No STRs (suspicious transaction reports) were raised,” the ED charged. Mhatre, it said, had complete remote access to the database of WazirX, but despite that, he is not providing the details of the transactions relating to the crypto assets, purchased from the proceeds of crime of instant loan app fraud.
ED has been probing the instant loan app alleged fraud cases and has said that a number of NBFC (non-banking financial companies) and their fintech partners were indulging in predatory lending practices in violation of the RBI guidelines and by using tele-callers who misuse personal data and use abusive language to extort high-interest rates from loan takers.
Various fintech companies, it said, backed by Chinese funds, could not get NBFC license from RBI for carrying out lending business, and hence they devised the MoU route with defunct NBFCs to piggyback on their license. The ED said as its criminal probe under the anti-money laundering law began, many of these fintech apps shut shop and diverted away their huge profits using the above modus operandi.
“While doing fund trail investigation, ED found that large amounts of funds were diverted by the fintech companies to purchase crypto assets and then launder them abroad. These companies and the virtual assets are untraceable at the moment,” said the anti-money laundering agency.
[with PTI inputs]
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