The Enforcement Directorate has issued a show cause notice to crypto exchange WazirX for the contravention of Foreign Exchange Management Act (FEMA) 1999. This is for transactions involving crypto-currencies worth Rs 2,790.74 crore, the Enforcement Directorate said. In a statement, the ED said it had issued the show cause notice to its directors CEO Nischal Shetty and Sameer Hanuman Mhatre. WazirX was acquired by Cayman Islands-domiciled cryptocurrency exchange Binance in 2019.
The Enforcement Directorate said it initiated the FEMA investigation “on the basis of the ongoing money laundering investigation into Chinese owned illegal online betting applications”.
It said that accused Chinese nationals had laundered roughly Rs 57 crore, which were proceeds of crime, by transferring the deposits from rupees to cryptocurrency tether and then transferring the same to Binance wallets, which it said were “based on instructions received from abroad”.
The ED outlined transactions that it said were allowed by WazirX, and said that the exchange doesn’t collect the requisite documents, stating that this was in violation of the mandatory Money Laundering (AML) and Combating of Financing (CFT) precaution of norms and FEMA guidelines.
“In the period under investigation, users of WazirX via its pool account, have received incoming Crypto-Currency worth Rs 880 crore from Binance accounts and transferred out Crypto-Currency worth Rs 1400 crore to Binance accounts. None of these transactions are available on the blockchain for any audit/investigation,” it said.
“It was found that the WazirX Clients could transfer 'valuable' crypto-currencies to any person irrespective of its location and without any proper documentation whatsoever, making it a safe haven for users looking for money laundering/other illegitimate activities,” it added.
Recently, the Reserve Bank of India asked banks to exercise caution pertaining to cryptocurrencies and asked banks to carry out necessary customer due diligence processes “for Know Your Customer (KYC), Anti-Money Laundering (AML), Combating of Financing of Terrorism (CFT) and obligations of regulated entities under Prevention of Money Laundering Act, (PMLA), 2002 in addition to ensuring compliance with relevant provisions under Foreign Exchange Management Act (FEMA) for overseas remittances”.
Recently, RBI Governor Shaktikanta Das made it clear that the central bank's view on cryptocurrencies remains unchanged and it continues to have "major concerns".
In a statement, WazirX said that it is “yet to receive any show cause notice from the Enforcement Directorate as mentioned in media reports. WazirX is in compliance with all applicable laws. We go beyond our legal obligations by following Know Your Customer (KYC) and Anti Money Laundering (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'll fully cooperate in the investigation.”