The Directorate of Enforcement (ED) is investigating two cases against WazirX under the provisions of Foreign Exchange Management Act, 1999 (FEMA), the Ministry of Finance told the Rajya Sabha on August 2.
The ministry added that Zanmai Labs, which operates WazirX, was using the walled infrastructure of Binance.
“Further it has been found that all crypto transactions between these 2 exchanges were not even being recorded on the blockchains and were thus cloaked in mystery. Accordingly, a show cause notice (SCN) has been issued under the provisions of FEMA against WaxirX for allowing outward remittance of crypto assets worth Rs 2,790 crore to unknown wallets.”
The ministry also added that WazirX has allowed the foreign users’ request to convert one crypto into another by using transfer from third-party exchanges namely FTX, Binance, etc.
This response followed Rajya Sabha member Sushil Kumar Modi’s question about whether some crypto exchanges allowed citizens from countries like the US, Germany, and Brazil to transact without KYC, AML compliance, the amount received by these crypto exchanges from global capital ventures for which disclosure has not been made, whether Indian crypto platform used wallet infra of foreign exchange without any agreement and whether some exchanges have ever facilitated foreign users' request to convert one crypto into another by using third party exchange based overseas and earn commission on it.
Binance acquired WazirX in 2019. Over the last one year, WazirX has witnessed a change in leadership with its co-founder Siddharth Menon moving away from the exchange and Nischal Shetty stepping away from its day-to-day operations.
Last month ED also sent out notices to a number of exchanges including WazirX to seek details about customer transactions.
Besides this, the Ministry of Finance also shared its stand on cryptocurrency in a written response. The ministry said that cryptocurrencies are borderless and require international collaboration to 'prevent regulatory arbitrage'.
"Therefore, any policy framework on cryptocurrency can be effective only after significant international collaboration on evaluation of the risks and benefits and evolution of common taxonomy and standards." This was in response to a question by Rajya Sabha member John Brittas.
This comes at a time when the crypto industry is grappling with multiple challenges such as new taxation rules, and plunging valuations of cryptocurrency tokens, leading to trading volumes plummeting on the exchanges.
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