Why has ED issued a showcause notice to WazirX?

Alan Joseph Alan Joseph
Jun 12, 2021 4 min read
Why has ED issued a showcause notice to WazirX?

The Enforcement Directorate has announced that it has sent a notice towards the largest cryptocurrency exchange of India, WazirX and its directors regarding a money laundering investigation. Let’s look at the information regarding the money laundering case and the amount involved.

ED notice to WazirX – Latest News
Names mentioned in the notice issued to WazirX by ED
The Allegations on WazirX
What did Enforcement Directorate found through Investigation upon WazirX
FAQ

ED notice to WazirX – Latest News

On 11 June 2021, the Enforcement Directorate had issued a show cause notice to the largest cryptocurrency exchange in India, WazirX. The notice provided is for going against the law of FEMA 1999 (Foreign Exchange Management Act). The cryptocurrency exchange has been said to be involved in the transactions involving cryptocurrencies which are estimated to be a worth of INR 2,790.74 crores.

The Enforcement Directorate had mentioned in a statement that it had initiated the statement regarding FEMA due to the ongoing investigation regarding the investigation of money laundering which involves various betting online applications that are owned by the Chinese.


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Names mentioned in the notice issued to WazirX by ED

WazirX is a cryptocurrency platform that is registered under the company name Zanmai Labs Pvt Ltd. The company was registered in the year 2017 in the month of December as a domestic cryptocurrency startup.

After the completion of the investigation, the central probe agency had issued a notice in which the name of the company and the name of the directors Hanuman Mhatre and Nischal Shetty have been mentioned. The global cryptocurrency exchange Binance had acquired WazirX in the year 2019.

WazirX Trading volume Growth
WazirX Trading volume Growth

The Allegations on WazirX

During the duration of the investigation, it was found that the Chinese nationals who were accused of the money laundering case had laundered the proceeds of the crime which is said to have a worth of INR 57 crores.

The laundering of the amount is said to be converted into cryptocurrencies from the Indian National Rupee. The amount was exchanged to the Tether cryptocurrency and was then transferred to the wallets on the Binance Exchange that is registered in the Cayman Islands.

The wallet transaction was expected to be based on the instructions that were received from abroad. The Enforcement Directorate also alleged that the cryptocurrency exchange WazirX also allows a wide range of transactions with cryptocurrencies which include the transactions to the exchanges or INR and vice-versa, peer to peer transactions, exchange of cryptocurrencies and even the transaction of cryptocurrencies that are held in its pool accounts to various other exchanges.

The wallets can be held by anyone who can be foreigners in foreign locations.


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What did ED found through Investigation upon WazirX

The ED had alleged that WazirX does not collect any required documents which is a proper violation of the basic mandatory Anti-money laundering (AML). They also added that it was against the Combating finance of terrorism (CFT) norms and also FEMA guidelines.

During the investigation, it was found that WazirX had received cryptocurrencies through its pool account from Binance exchange which had a value of around INR 880 crores and it was also found that there was a transfer of cryptocurrencies from WazirX to Binance exchange which had a value of around INR 1,400 crores. However, these transactions were not recorded on any blockchain and could not be audited or investigated.

The investigation also found that the cryptocurrency exchange WazirX could also transfer cryptocurrencies to people from any location or any nationality even without proper documents which makes it a safe haven for people who are involved in illegal businesses and money laundering. It makes itself a crypto exchange supporting illegitimate activities.

WazirX founder stated on Twitter they didn't receive any show-cause notice till now from the Enforcement Directorate and they comply with all applicable laws.

Conclusion

WazirX one of the largest cryptocurrency exchange has been alleged for promoting illegal and illegitimate activities through their exchange and even the parent company of WazirX, Binance exchange has also the involvement in the case. The Indian Government has conveyed that they were open to exploring the new technologies like cryptocurrencies for improving their governance.

FAQ

Why did ED issue notice to WazirX?

ED has issued a notice to WazirX, and its Directors Nischal Shetty and Sameer Hanuman Mhatre for alleged violation of the Foreign Exchange Management.

Is WazirX owned by Binance?

Yes, WazirX is owned by Binance and is often acknowledged as the world's largest cryptocurrency exchange by trading volume.

Who is the CEO of WazirX?

Nischal Shetty is the CEO and Founder of WazirX who founded WazirX on march 2018.

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