On August 5, the Enforcement Directorate (ED) announced that it had frozen the bank account of one of the directors of Zanmai Lab Private Ltd, which owns the crypto-currency exchange WazirX.
The agency stated that it is conducting a money laundering investigation against a number of Indian NBFC companies and their fintech partners for predatory lending practices that violated RBI guidelines, as well as using tele-callers who misused personal data and used abusive language to extort high-interest rates from loan takers.
“Several fintech companies backed by Chinese funds were unable to obtain an NBFC licence from the RBI to conduct lending business. So they devised the Memorandum of Understanding route with defunct NBFCs to piggyback on their licence “ED stated.
ED discovered that Zanmai Labs had created a web of agreements with Crowdfire Inc USA, Binance (Cayman Islands), and Zettai Pte Ltd Singapore to conceal ownership of the crypto exchange during the investigation.
“Previously, their managing director Nischal Shetty claimed that WazirX is an Indian exchange that controls all crypto-crypto & INR-crypto transactions and only has an IP & preferential agreement with Binance,” according to the ED.
“However, Zanmai now claims that they are only involve in INR-crypto transactions and that all other transactions are handled by Binance on WazirX.” “They are providing contradictory and ambiguous answers in order to avoid oversight by Indian regulatory agencies,” ED said in a statement.
WazirX failed to provide crypto transactions
According to the agency, despite numerous opportunities, WazirX failed to provide the crypto transactions of the suspect fintech APP companies and reveal the KYC of the wallets. Furthermore, the majority of transactions are not available on the blockchain.
As per ED, court orders were issued to cryptocurrency exchanges, and the maximum amount of funds was diverted to the WazirX exchange, with the crypto-assets purchased being diverted to unknown foreign wallets.
“Prior to July 2020, WazirX stated that they did not even record the details of the bank account from which funds were coming into the exchange to purchase crypto assets. There is no physical address verification. There is no oversight of their clients’ sources of funds. EDD does not exist. No STRs has been reported, “The ED statement was added.
ED added that a search operation was conducted under PMLA on August 3, 2022, due to the non-cooperative stand of the director of WazirX exchange, and it was discovered that Sameer Mhatre, Director of WazirX, has complete remote access to the WazirX database, but he was not providing the details of the transactions relating to the crypto assets purchased from the proceeds of crime of the instant loan APP fraud.
WazirX is unable to account missing crypto assets
According to the agency, WazirX is unable to account for the missing crypto assets due to lax KYC standards, lax regulatory control of transactions between WazirX and Binance, non-recording of transactions on blockchains to save costs, and non-recording of the KYC of the opposing wallets. It has made no attempt to track down these crypto assets.
The central agency mentioned, “It has actively assisted around 16 accused fintech companies in laundering the proceeds of crime via the crypto route by encouraging obscurity and having lax Anti-Money Laundering (AML) norms. As a result, WazirX’s equivalent movable assets totalling Rs 64.67 crore consequently frozen under the PMLA, 2002.”