Fri. Dec 9th, 2022

The Enforcement Directorate (ED) said on Friday that it has frozen Rs. Bank deposits worth Rs 64.67 crore from one of India’s leading cryptocurrency exchanges, WazirX, as part of an ongoing money laundering investigation against some “backed” smartphone-based fraudulent loan delivery apps. by” Chinese funds.
The federal agency said it raided Sameer Mhatre, director of Zanmai Lab Pvt Ltd (owner of WazirX) on August 3, as he was unwilling to ask for information and was “uncooperative”.

The ED released a statement and said that the exchange and its executives were “providing conflicting and ambiguous responses to evade oversight from Indian regulatory agencies.”

The agency said it found that several fintech companies involved in “predatory lending” via mobile apps in the country “diverted maximum amounts of funds to the WazirX exchange and the crypto assets thus purchased were diverted to unknown foreign wallets.”

The ED has charged WazirX with at least four counts of displaying uncooperative behavior that forced him to hit a wall in the investigation against the threat of instant loan apps.

Zanmai Labs Pvt Ltd has created a network of deals with Crowdfire USA, Binance (Cayman Islands), Zettai Pte Ltd Singapore to “hide” ownership of the crypto exchange (WazirX), it alleged. “Its Managing Director, Mr. Nischal Shetty, claimed that WazirX is an Indian exchange that controls all crypto-crypto and inr-crypto transactions and has only one IP and a preferential deal with Binance.” “But now, Zanmai claims that they are only involved in inr-crypto transactions, and all other transactions are done by Binance on WazirX,” the ED said.

He said that WazirX runs from 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 again has no known offices, no known employees, and rarely responds to inquiries at [email protected],” the ED said.

The agency alleged that despite repeatedly providing opportunities, WazirX “failed to provide the crypto transactions of the suspicious fintech app companies and failed to disclose the KYC of the wallets.” “Most transactions are also not recorded on the blockchain,” he said.

WazirX reported that before July 2020, they did not even record the details of the bank account from which the funds were coming into the exchange to buy crypto assets and that no verification of the physical address was carried out, the ED said. “The origin of their customers’ funds is not verified. No EDD (enhanced customer due diligence) is performed. No STR (suspicious transaction reports) are generated,” charged the ED.

Mhatre, he said, had full remote access to the WazirX database, but despite that, he does not provide transaction details related to the crypto assets, acquired with the proceeds of the instant loan app fraud crime. “Lax KYC rules, lax regulatory control of transactions between WazirX and Binance, lack of transaction logging on blockchains to save costs, and lack of KYC registration of opposing wallets has ensured that WazirX cannot give any account because of the lack of crypto assets,” said the ED. It has made no effort to track these crypto assets. By encouraging obscurity and having lax AML (anti-money laundering) regulations, WazirX has actively helped around 16 accused fintech companies launder proceeds of crime using the crypto route, he said.

“Therefore, mobile assets equivalent to the extent of Rs. 64.67 crore held in WazirX have been frozen under the PMLA,” it said.

ED has been investigating alleged instant loan app fraud cases and has said that a number of NBFCs (non-bank finance companies) and their fintech partners were engaging in predatory lending practices in violation of RBI guidelines and by using tele-callers that abuse personal data and use abusive language to extort lenders with high interest rates. Several fintech companies, he said, backed by Chinese funds, were unable to obtain the NBFC license from RBI to carry out lending business and thus devised the MoU route with defunct NBFCs to take advantage of their license.

The ED said that when it began its criminal investigation under the anti-money laundering law, many of these fintech apps shut down and siphoned off their huge profits using the above modus operandi. “While conducting a fund tracing investigation, ED discovered that fintech companies siphoned off large amounts of funds to purchase crypto assets and then launder them abroad. These companies and virtual assets are untraceable at this time,” he said. WazirX, last year, earned a Rs. Rs 2,790 crore worth of just cause notice from the Department of Education for alleged breach of the Foreign Exchange Management Act (FEMA).


Read More: ED Freezes WazirX Funds Worth Rs 64-Cr for ‘Assisting’ in Money Laundering