According to the agency,the exchange has ‘actively’ assisted around 16 fintech companies under investigation on charges of money laundering to divert their alleged proceeds of crime using the crypto route. The agency probe has found that the exchange has a complicated ownership structure making it ‘obscure’. The exchange was in alleged violation of KYC norms and has failed to conduct any enhanced due diligence (EDD) nor has raised any suspicious transaction reports (STRs). A STR is raised to the financial intelligence unit (FIU) when a reporting entity suspects or has reasonable grounds to suspect that funds are the proceeds of a criminal activity, or are related to terrorist financing,.
The probe has found that most of the transactions on the exchange were not recorded on the blockchain also. WazirX had earlier informed investigators 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. No physical address verification was done. There is no check on the source of funds of their clients.
The agency’s statement comes days after the minister for state (Finance) Pankaj Chaudhary told the Parliament that WazirX was being probed under money laundering.
An email sent to WazirX remained unanswered until press time. In a statement released on Tuesday, the exchange said they are only being investigated under FEMA charges and not under PMLA. In June last year, ED had asked India’s largest cryptocurrency exchange by volume, WazirX, to explain transactions worth Rs 2,790.74 crore involving cryptocurrencies that are allegedly in violation of FEMA rules.
The agency has been investigating a number of Indian NBFC companies and their fintech partners for predatory lending practices in violation of the RBI guidelines and by using tele-callers who misuse personal data and use abusive language to allegedly extort high interest rates from the loan takers. Various fintech companies backed by Chinese funds could not get NBFC license from RBI for carrying out lending business. So they devised the MoU route with defunct NBFCs to piggyback on their license.
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Post the probe , many of these fintech apps have shut shop and diverted away the huge profits earned using the above modus operandi, the ED said in a statement Friday. “…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. Summons were issued to the crypto-exchanges. It is seen that the maximum amount of funds were diverted to WazirX exchange and the crypto-assets purchased have been diverted to unknown foreign wallets,” the statement added.
The agency claims that search was conducted on August 3 after the director of WazirX exchange failed to cooperate during the course of the probe. “..a search operation was conducted under PMLA and it was found that Sameer Mhatre, Director WazirX, has complete remote access to the database of WazirX, butdespite 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,” the statement further added.
Zanmai Labs Pvt Ltd – the company owning WazirX Crypto Exchange – has created a web of agreements with — Crowdfire Inc. USA, Binance (Cayman Islands), Zettai Pte Ltd Singapore — to allegedly obscure the ownership of the crypto exchange. WazirX works from a cloud based software (@AWS Mumbai), all employees work from home, the registered office is a 2 Chair co-working Wework space and all crypto-crypto transactions are controlled by Binance
“..Earlier, their Managing Director Mr Nischal Shetty had claimed that WazirX is an Indian Exchange which 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 and ambiguous answers to evade oversight by Indian regulatory agencies,” the ED further said.
“.. The lax KYC norms, loose regulatory control of transactions between WazirX and Binance, non- recording of transactions on Blockchains to save costs and non recording of the KYC of the opposite wallets has ensured that WazirX is not able to give any account for the missing crypto assets. It has made no efforts to trace these crypto assets,” the statement adds.