The Enforcement Directorate (ED) said Friday that it had frozen Rs 64.67 crore’s bank assets of a company that runs a popular cryptocurrency exchange, WazirX, adding that the premises of a director of the company, Zanmai Labs, were searched on Wednesday.
The ED said it had found evidence against the company during the investigation of non-banking financial firms (NBFC) and their fintech partners indulging in predatory lending practices. After the investigation began, they said many of these companies closed their doors and funneled money through the fintechs to buy crypto assets, which were then laundered abroad.
ED searches the director of WazirX Crypto-Currency Exchange and freezes his bank assets worth Rs 64.67 Crore for helping accused Instant Loan APP companies launder fraud money through purchase and transfer of virtual crypto assets.
— ED (@dir_ed) August 5, 2022
“These companies and the virtual assets are currently untraceable. A subpoena has been issued to the crypto exchanges. It can be seen that the maximum amount of money has been diverted to the WazirX exchange and the crypto assets thus purchased have been diverted to unknown foreign wallets,” the ED said in a statement.
The NBFCs allegedly used telephone callers who misused personal information and used abusive language to extort high interest rates from borrowers. Several Chinese-backed fintechs were unable to obtain NBFC licenses from RBI. “So they came up with the MoU route with defunct NBFCs to piggyback on their licenses. After the criminal investigation started, many of these fintech apps closed their shop and the huge profits made from this modus operandi, led away,” the ED said.
According to ED, Zanmai Labs has created a web of agreements with Crowdfire Inc. USA, Binance (Cayman Islands) and Zettai Pte Ltd, Singapore, to cover up ownership of the crypto exchange.
“Previously, their director, Mr. Nischal Shetty, had claimed that WazirX is an Indian exchange that manages all crypto-to-crypto and INR-to-crypto transactions and only has an IP and Preferred Agreement with Binance. But now Zanmai claims that they are only involved in INR-to-crypto transactions and all other transactions are done by Binance on WazirX. They give contradictory and ambiguous answers to evade scrutiny by Indian regulatory authorities,” the ED statement said.
According to the ED, WazirX works with cloud-based software (@AWS Mumbai) and all its employees work from home. The HQ is a two-seat coworking space with Wework, and all crypto-to-crypto transactions are managed by Binance (which again has no known office, no known employee, and rarely responds to inquiries at email@example.com), the agency said.
“Despite repeated chances, WazirX has not disclosed the crypto transactions of the suspected fintech app companies and disclosed the KYC. [know-your-customer details] of the purses. Most transactions are also not recorded on the blockchain,” the ED statement said.
According to the ED, WazirX said that before July 2020, it had not even recorded details of the bank account from which funds came to the exchange to buy crypto assets. “No physical address verification is performed. There is no control over the source of their clients’ funds… Due to the uncooperative position of the director of the WazirX exchange, a search was conducted under the PMLA on 3.8.2022,” the ED said, adding that Sameer Mhatre, a director of the exchange, declined to provide details about the transactions related to the crypto assets purchased with the proceeds of instant loan app fraud.
According to the ED, lax KYC standards, loose regulatory control over transactions between WazirX and Binance, non-registration of transactions on blockchains to save costs and non-registration of KYC details of the opposing wallets had prevented WazirX from taking account of the missing crypto assets.
“It has made no effort to trace these crypto assets. By encouraging ambiguity and adopting lax AML (anti-money laundering) standards, it has actively helped about 16 accused fintech companies to launder the proceeds of crime using the crypto route. Therefore, equivalent movable property in the amount of Rs. 64.67 crore belonging to WazirX were frozen under PMLA 2002,” the ED statement said.