The Directorate of Enforcement of India has frozen $8.1M in WazirX fund as part of its investigation into immediate personal loan fraud and Anti-money laundering.
The Directorate of Enforcement accused WazirX of facilitating transactions by unnamed fintech companies “to purchase crypto assets and then launder them abroad” as part of a scheme involving Chinese-backed businesses evading India’s licensing requirements, according to a statement released on Friday.
The ED claimed that as part of its investigation, it searched a location associated with co-founder Sameer Mhatre and ordered WazirX bank accounts containing 646.7 million Indian rupees, or about $8.1 million at the time of publication, to be frozen.
The regulator stated that the inquiry was still ongoing. The ED asserted that WazirX and Binance’s transactions were subject to “weak regulatory oversight” and “low KYC rules” and that the crypto exchange failed to keep track of the necessary data to confirm the source of the funds used to commit the alleged fraud.
The ED stated: “Despite numerous opportunities, WazirX failed to provide the cryptocurrency transactions of the questionable fintech APP companies and expose the KYC of the wallets.”
“WazirX is not able to give any account for the missing crypto assets. It has made no efforts to trace these crypto assets. By encouraging obscurity and having lax AML norms, it has actively assisted around 16 accused fintech companies in laundering the proceeds of crime using the crypto route.”
Binance CEO Changpeng Zhao stated on Friday that the company had “no equity in Zanmai Labs, the company running WazirX and created by the original founders,” in a post on Twitter.
As a technical solution, “Binance simply provides wallet services for WazirX,” he continued, adding that WazirX was in charge of managing KYC and other exchange-related activities.
Nischal Shetty, the director of WazirX, refuted many of CZ’s assertions on Twitter by stating that the cryptocurrency exchange “was acquired by Binance Zanmai Labs” and “is an India entity owned by me & my co-founders.” He said that running cryptocurrency trading pairs and handling withdrawals was under the purview of Binance.
Many businesses are apparently turning to the markets in India as a result of the migration of many crypto enterprises from China as a result of a legislative crackdown.
According to the ED, certain fintech companies “supported by Chinese investors” “piggybacked” on Indian businesses that had expired licenses for non-banking financial organizations to provide loan services to locals.
In June 2021, the ED ordered WazirX to demonstrate cause in connection with transactions of a money-laundering investigation into unlawful online betting applications involving Chinese citizens.
The transaction “beyond [its] legal duties by following Know Your Customer (KYC) and Anti Money Laundering (AML) standards and have always provided information to law enforcement agencies whenever requested,” Shetty said at the time.