Leading Indian cryptocurrency exchange WazirX has received a show cause notice from the Enforcement Directorate (ED) for contravention of the FEMA, 1999, for cryptocurrency transactions worth Rs. 2,790.74 crore, the enforcement agency shared in a tweet on Friday. The enforcement agency in a press release added that Chinese nationals had used the crypto exchange to launder gambling proceeds worth Rs. 57 crore.
WazirX is an Indian cryptocurrency exchange in India that was launched in 2018. Users can go to WazirX to buy and sell Bitcoin, as well as other cryptocurrencies while spending in Rupees. Although the status of cryptocurrencies in India was in flux for some time, there has been a lot of interest in these tokens as an investment option.
However, cryptocurrency has also been used in the past for illegal payments — including, infamously, payments on the Dark Web, since it’s harder to track the movement of funds through cryptocurrency. In the tweet posted by the ED, the agency stated: “ED has issued Show Cause Notice to WazirX Crypto-currency Exchange for contravention of FEMA, 1999 for transactions involving crypto-currencies worth Rs. 2790.74 Crore.”
WazirX replied to state that it has not received the show cause notice so far. It also denied any non-compliance from the company. “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,” Nischal Shetty, CEO and founder, WazirX said in an emailed statement, which he also tweeted. “The funds are safe at WazirX, there is no need to worry about the funds,” he added.
FEMA is the Foreign Exchange Management Act of 1999, which is meant “to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.”
According to the press release from the ED, the Show Cause Notice (SCN) has been sent to M/s Zanmani Labs Pvt Ltd (WazirX) its directors. The ED started investigating money laundering operations by Chinese-owned illegal online betting apps, and alleged that these Chinese nationals laundered Rs. 57 crore worth through WazirX, buying the cryptocurrency Tether.
“During the course of the investigation, it was seen that the accused Chinese nationals had laundered proceeds of crime worth Rs 57 Crore approximately by converting the INR deposits into Crypto-currency Tether (USDT) and then transferring the same to Binance (exchange registered in Cayman Islands) Wallets based on instructions received from abroad,” the statement said.
“It was found that the WazirX Clients could transfer ‘valuable’ cryptocurrencies to any person irrespective of its location and nationality without any proper documentation whatsoever, making it a safe haven for users looking for money laundering/ other illegal activities,” it added.