Popular Indian cryptocurrency exchange WazirX has been in the news recently as the Enforcement Directorate (ED) froze ₹64.67 crore worth of bank deposits of the cryptocurrency firm. The ED had already been looking into WazirX for some time, and they issued a show cause notice to WazirX in relation to a money laundering investigation into Chinese-backed loan apps. Eventually, ED released the frozen funds of WazirX after the firm cooperated with the government agency's demands. Let's try and understand the whole timeline of events behind the WazirX - ED situation and why ED was targeting WazirX, which is one of India's premier cryptocurrency exchanges.
The situation unfolded when Pankaj Chaudhary, Minister of State for Finance, informed the Lok Sabha on August 2, 2022, that Enforcement Directorate (ED) had issued a notice to WazirX. Further, he said that ED had been investigating two crypto-related cases again WazirX under the Foreign Exchange Management Act (FEMA).
“In one of the cases, the investigation so far has revealed that one Indian crypto-exchange program WazirX, operated by Zanmai Labs Private Limited in India was using the walled infrastructure of Cayman Island-based exchange Binance. Further, it has been found that all crypto transactions between these two exchanges were not even being recorded on the blockchains and were thus cloaked in mystery.”Pankaj Chaudhary wrote in a letter to the Rajya Sabha.
As per the minister, the show cause notice had been issued to WazirX for allowing fund transfers worth ₹2790 crore under the provisions of FEMA. On August 5, 2022, the ED announced that it had frozen ₹64.67 crores worth of WazirX bank deposits as part of the ongoing investigation against money laundering. ED also announced that they had initially conducted raids against Sameer Mhatre, one of the directors of Zanmai Labs Private Limited and that he had been uncooperative and unwilling to provide the information that the agency required of him. The ED said in a statement that WazirX's executives were providing ambiguous and contradictory answers to evade oversight by Indian regulatory agencies.
ED also said that many fintech companies that were responsible for these predatory loan apps were diverting large amounts of funds to WazirX in the form of cryptocurrencies and then cryptocurrencies were sent to unknown foreign crypto wallets.
"The lax KYC norms, loose 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 opposite wallets has ensured that WazirX is not able to give any account for the missing crypto assets. Therefore, equivalent movable assets to the extent of ₹64.67 crore lying with WazirX were frozen under the PMLA"The ED said.
Amidst all of this, the CEO of Binance also announced released a tweet to clarify they did not own any equity in Zanmai Labs, which owns and operates WazirX. Back in 2019, Binance and WazirX had jointly announced that Binance has acquired WazirX. However, Binance's CEO clarified that these acquisitions never went through and thus WazirX was not owned by Binance.
“The company has no association with any of the alleged accused fintech and instant loan app entities which appear to be the subject of ED investigation and is carrying out the KYC/AML checks despite having no legal obligation to do so. WazirX is like any other intermediary whose platform may have been misused,”WazirX said.
On September 12, 2022, WazirX publicly announced that ED had released its frozen accounts and had given permission to the company to continue using the accounts. WazirX also said that ED had released their accounts since WazirX had openly cooperated with the government agencies and provided them with all the data on suspicious users that was requested. WazirX also said that they had already flagged these suspicious accounts that ED was investigating and had already blocked their accounts in 2020-2021.
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