Even as the Enforcement Directorate (ED) has conducted searches on one of the directors of Zanmai Lab, which owns cryptocurrency exchange WazirX, there are other cryptocurrency exchanges that are under the ED lens. The authority is investigating alleged money laundering cases over Rs 1,000 crore involving at least 10 crypto exchanges, most of them having a China link, according to an ET report.
The probe has unearthed instances where exchanges were approached to buy crypto coins for over Rs 100 crore and crypto coins being sent to international wallets. The exchanges did not conduct any enhanced due diligence and even failed to raise suspicious transaction reports (STRs), according to the report quoting sources.
Next week also, the ED may question officials of the crypto exchanges under investigation. “While, so far, the agency has frozen the accounts of WazirX, similar transactions have taken place on the other exchanges and they have been asked to join the probe,” according to the ET report quoting an official.
It also added that KYC details were also dubious in many cases. The person with KYC has no connection with the transaction in many cases.
The ED is conducting money laundering investigations against many Indian NBFC companies and their fintech partners for predatory lending practices.
The agency conducted raids against the director of Zanmai Lab on August 3 in Hyderabad and alleged he was “non-cooperative”. Its probe against the crypto exchange is linked to its ongoing investigation against a number of Chinese loan apps (mobile applications) working in India. The agency had charged WazirX last year for alleged contravention of the Foreign Exchange Management Act (FEMA).
“It was found that Sameer Mhatre, Director WazirX, has complete remote access to the database of WazirX, but despite 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 lax KYC norms, loose regulatory control of transactions between WazirX and Binance, non-recording of transactions on block chains 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,” the ED alleged in a statement.
WazirX in a statement said it is a platform co-operated by Zanmai Labs and Binance. “Zanmai Labs has a no-tolerance policy towards any illegal activities using WazirX. Users agree in the User Agreement to use WazirX in accordance with applicable law. Users are signed up on WazirX only after they complete the KYC process, including submitting proof of address and identity. Our KYC/AML terms and processes are available on the platform publicly. For every transaction, we are able to produce the KYC details of the relevant user. We do not accept any cash transactions. We have fully cooperated with the Enforcement Directorate (ED) for several days and have responded to all their queries fully and transparently.”
It added the ED appears to be investigating the transactions of certain users and Zanmai Labs has no affiliation to such users and is unaware about the purpose of their transactions. Zanmai Labs is in the position of any other intermediary whose platform may have been misused.
WazirX also said there seems to be a major misunderstanding about off-chain transactions between WazirX and Binance. Off-chain transactions between WazirX and Binance can only be done by a user between his/her/its own account on the two platforms. Hence, KYC details are available for all off-chain transfers as well [and have been submitted to the ED when requested]. Off-chain withdrawals also cannot happen if the accounts are not KYCed. Law Enforcement Agencies (LEAs) can get complete information about the accounts involved in off-chain transfers.