Hyderabad: The Directorate of Enforcement (ED) has issued an order to freeze the bank balances, worth Rs. 64.67 crores, of Zanmai Lab Pvt. Ltd. which owns the popular cryptocurrency exchange WazirX.
WazirX actively assisted around 16 fintech companies, accused in the loan app scam, in laundering the proceeds of crime using the crypto route.
Loan app scam
ED is conducting a money-laundering investigation against a number of Indian NBFC companies and their fintech partners for predatory lending practices in violation of the RBI guidelines and for using tele-callers who misuse personal data and use abusive language to extort high interest rates from loan takers.
Various fintech companies backed by Chinese funds could not get NBFC license from RBI to conduct lending business. So, they signed MoUs with defunct NBFCs to piggyback on their licenses.
Fintech firms diverted funds through WazirX
After the criminal investigation began, many of these fintech apps shut shop and diverted the huge profits they earned. During a fund trail investigation, the ED found that a large amount of funds were diverted by the fintech companies to purchase crypto assets and launder them abroad. These companies and the virtual assets are untraceable at the moment, the ED said.
Summons were issued to the crypto exchanges. The maximum amount of funds were diverted to WazirX exchange and the crypto-assets purchased were diverted to unknown foreign wallets.
The case against WazirX
The ED found that Zanmai Labs Pvt. Ltd.—the company that owns WazirX crypto exchange—has created a web of agreements with Crowdfire Inc. (USA), Binance (Cayman Islands), and Zettai Pte Ltd. (Singapore) to obscure the ownership of the crypto exchange. Earlier, their managing director Nischal Shetty had claimed that WazirX is an Indian exchange that controls all the crypto-crypto and INR-crypto transactions and only has an IP and preferential agreement with Binance. But now, Zanmai claims that they are involved in only INR-crypto transactions, and all other transactions are done by Binance on WazirX.
WazirX works from a Cloud-based software (@AWS Mumbai), all employees work from home, and the registered office is a two-chair co-working Wework space. Also, all crypto-crypto transactions are controlled by Binance which also does not have any known office or employees and rarely responds to queries, the ED added.
According to the ED, despite giving repeated opportunities, WazirX failed to provide crypto transactions of suspect fintech app companies and reveal the KYC of the wallets. Most of the transactions were also not recorded on the blockchain.
WazirX said prior to July 2020, they did not even record the details of the bank account from which funds were coming into the exchange to purchase crypto assets. No physical address verification was done and the source of funds of their clients was not checked. No EDD was done and neither were STRs raised.
Following the non-cooperation of the WazirX director, a search was conducted on 3 August and it was found that the director, Sameer Mhatre, has complete remote access of the database of WazirX. Despite that he is not providing the details of the transactions relating to the crypto assets, the ED said.
It further said 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 unable to give any account for the missing crypto assets. Further, it has made no efforts to trace these crypto assets, the ED said.