The Enforcement Directorate (ED) issued a show-cause notice to cryptocurrency exchange WazirX and its directors Nischal Shetty and Sameer Mhatre on June 11 for allegedly violating guidelines in connection with transactions worth Rs 2,790.74 crore.
The notices were issued under the Foreign Exchange Management Act (FEMA), 1999, after the ED initiated an investigation on the basis of an ongoing money laundering probe into “illegal” Chinese-owned online betting applications, the agency said in a statement.
WazirX is an Indian cryptocurrency exchange that acts as a platform for trading in digital currencies such as Bitcoin, Ethereum, Tron, Ripple and Litecoin.
The ED claimed Chinese nationals had laundered the proceeds of crimes worth about Rs 57 crore by converting Indian rupee deposits into the cryptocurrency Tether and then transferred them to Binance Wallet, an exchange registered in the Cayman Islands, based on “instructions received from abroad.”
The agency said users of WazirX, via its pool account, received cryptocurrency worth Rs 880 crore from Binance accounts and transferred out digital currencies worth Rs 1,400 crore to Binance accounts.
“None of these transactions are available on the blockchain for any audit/investigation,” the ED said.
The platform allows transactions with cryptocurrencies, including exchange of digital currencies with the rupee and vice-versa; exchange of cryptocurrencies; person-to-person transactions, and transfer or receipt of cryptocurrencies held in its pool accounts to wallets of other exchanges, which, the ED claimed, could be held by foreigners overseas.
“WazirX does not collect requisite documents in clear violation of the basic mandatory Anti Money Laundering (AML) and Combating of Financing of Terrorism (CFT) precaution norms and FEMA guidelines,” the agency said in a statement. “It was found that the WazirX clients could transfer ‘valuable’ cryptocurrencies to any person irrespective of location and nationality without any proper documentation whatsoever, making it a safe haven for users looking for money laundering/other illegitimate activities.”
Shetty, who is also WazirX's CEO, said that his company was yet to receive any show-cause notice from ED. “WazirX is in compliance with all applicable laws. We go beyond our legal obligations by following KYC and AML processes and have always provided information to law enforcement authorities whenever required.”
“We are able to trace all users on our platform with official identity information. Should we receive a formal communication or notice from the ED, we will fully cooperate in the investigation,” Shetty added.
The Reserve Bank of India, in a May 31 clarification on customer due diligence for transactions in virtual currencies, had highlighted certain provisions of the law and had asked banks to exercise caution.
The RBI said banks must carry out customer due diligence in line with regulations governing the standards for Know Your Customer, AML, CFT and obligations of regulated entities under the Prevention of Money Laundering Act, 2002.
Banks must also ensure compliance with relevant provisions under FEMA for overseas remittances, the RBI had said.
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