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ED issue show cause notice to Mumbai firm over illegal cryptocurrency trade

The ED had initiated FEMA investigation on the basis of the ongoing money laundering investigation into Chinese owned illegal online betting applications.

ED

The ED has issued a show-cause notice to the Mumbai firm. (Representational Image)

The Enforcement Directorate (ED) on Friday issued a show-cause notice to a Mumbai-based firm involved in cryptocurrency exchange and its directors Nischal Shetty and Sameer Hanuman Mhatre under Foreign Exchange Management Act (FEMA). The notice was issued for transactions involving crypto-currency worth Rs 2790.74 crore, officials said.

The ED had initiated a FEMA investigation on the basis of the ongoing money-laundering investigation into Chinese-owned illegal online betting applications.

During the course of the investigation, it was found that the accused Chinese nationals had allegedly laundered proceeds of crime worth Rs 57 crore by converting the INR deposits into Crypto-currency Tether (USDT) and then transferring the same to Binance (exchange registered in the Cayman Islands) wallets based on instructions received from abroad.

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The accused firm Zanmai Labs Pvt Ltd (WazirX), allows a wide range of transactions involving crypto, including exchange of cryptocurrencies with Rupees and vice-versa, Person to Person (P2P) transactions and even transfer of crypto-currency held in its pool accounts to wallets of other exchanges which could be held in foreign locations.

“WazirX does not collect the requisite documents in clear violation of the basic mandatory Anti Money Laundering (AML) and Combating of Financing of Terrorism (CFT) precautionary norms and FEMA guidelines,” said the officials.

In the period under investigation, according to the ED, users of WazirX via its pool account received incoming crypto-currency worth Rs 880 crore from Binance accounts and transferred out crypto-currency worth Rs 1400 crore to Binance accounts.

“None of these transactions are available on the blockchain for any audit or investigation. It was found that the WazirX Clients could transfer ‘valuable’ crypto-currencies to any person irrespective of their location and nationality and without any proper documentation whatsoever, making it a safe haven for users looking for money laundering or other illegitimate activities,” added the officials.

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