The Enforcement Directorate (ED) has issued a show cause notice to leading Indian cryptocurrency exchange WazirX for violating the FEMA, 1999, for bitcoin transactions of Rs. 2,790.74 crore, the enforcement agency announced in a tweet on Friday. According to the enforcement agency’s press release, Chinese nationals exploited the cryptocurrency exchange to launder gaming proceeds totaling Rs. 57 crore.
WazirX is a cryptocurrency exchange based in India that began operations in 2018. Users can access WazirX to purchase and sell Bitcoin and other cryptocurrencies while paying in Rupees. While the legal status of cryptocurrencies in India has been in flux for some time, there has been considerable interest in these tokens as an investment vehicle.
However, bitcoin has been used for illegal payments in the past, most notably payments on the Dark Web, due to the difficulty of tracking the transfer of funds via bitcoin. The ED noted in a tweet that
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.
— ED (@dir_ed) June 11, 2021
WazirX said that it had not yet received the show cause notice. Additionally, the corporation denied any non-compliance. “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” WazirX CEO and founder Nischal Shetty stated in an emailed statement, which he also tweeted.
Statement on today's news:
— WazirX: Bitcoin & Cryptocurrency Exchange in India (@WazirXIndia) June 11, 2021
WazirX is yet to receive any show cause notice from the Enforcement Directorate as mentioned in today's media reports. WazirX is in compliance with all applicable laws. We go beyond our legal obligations by following Know Your Customer (KYC) and
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FEMA is the Foreign Exchange Management Act of 1999, which was enacted to “consolidate and alter the foreign exchange laws with the purpose of facilitating external commerce and payments and supporting the orderly development and maintenance of the foreign exchange market in India.”
According to the ED’s press statement, M/s Zanmani Labs Pvt Ltd (WazirX) and its directors have been served with a Show Cause Notice (SCN). The ED began investigating money laundering operations involving Chinese-owned unlawful online betting applications, alleging that these Chinese nationals laundered Rs. 57 crore through WazirX by purchasing 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.
The Reserve Bank of India (RBI) requested earlier this month that Indian banks refrain from referring to its 2018 circular on cryptocurrency. In 2018, the RBI issued a directive to banks prohibiting them from dealing in virtual currencies. However, the Supreme Court overturned this restriction last year in 2020, and in June, the RBI issued a new directive instructing banks to cease utilising the 2018 circular.
However, the RBI requested at the time that banks continue to adhere to additional measures. The RBI stated that banks and other financial institutions must continue to conduct due diligence in accordance with regulations governing standards for Know Your Customer (KYC), Anti-Money Laundering (AML), Combating Terrorism Financing (CFT), and regulated entities’ obligations under the Prevention of Money Laundering Act (PMLA), in addition to complying with applicable provisions.
Smrutirekha Bhoi