The Enforcement Directorate (ED) on August 5 said it has frozen the bank balance of around Rs 64.67 crore of one of the directors of Zanmai Lab Private Ltd, which owns the crypto-currency exchange WazirX.
The agency said it's 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 by using tele-callers who misuse personal data and use abusive language to extort high-interest rates from the loan takers.
"Various fintech companies backed by Chinese funds could not get an NBFC license from RBI for carrying out lending business. So they devised the MoU route with defunct NBFCs to piggyback on their license," it said.
During the investigation, ED observed that Zanmai Labs 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 & INR-crypto transactions and only has an IP & preferential agreement with Binance,” the ED stated.
“But now, Zanmai claims that they are involved in only INR-crypto transactions, and all the other transactions are done by Binance on WazirX. They are giving contradictory & ambiguous answers to evade oversight by Indian regulatory agencies," ED added in the statement.
According to officials, "WazirX works from a Cloud-based software (@AWS Mumbai), all employees work from home, the registered office is a 2 Chair co-working WeWork space, and all crypto-crypto transactions are controlled by Binance (which is again without any known office, any known employee and rarely responds to queries on legal@binance.com)."
The agency said despite getting repeated opportunities, WazirX failed to give the crypto transactions of the suspect fintech APP companies and reveal the KYC of the wallets. Further, most of the transactions are not recorded on the blockchain.
The ED said summons were issued to the crypto exchanges and the maximum amount of funds were diverted to the WazirX exchange, and the crypto-assets so purchased have been diverted to unknown foreign wallets.
"WazirX informed that 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 is done. There is no check on the source of funds of their clients. No EDD is done. No STRs were raised," added the ED statement.
Also Read: Yes Bank-DHFL case: ED attaches Rs 415 cr worth assets of builders Avinash Bhosale, Sanjay Chhabria
The ED alleged that because of the non-cooperative stand of the director of WazirX exchange, a search operation was conducted under PMLA on August 3, 2022, and it was found that Sameer Mhatre, Director of WazirX, has complete remote access to the database of WazirX, but despite that, he was not providing the details of the transactions relating to the crypto assets purchased from the proceeds of crime of the instant loan APP fraud.
The agency alleged that 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 have ensured that WazirX is not able to give any account for the missing crypto assets. It has made no efforts to trace these crypto assets.
"By encouraging obscurity and having lax Anti-Money Laundering (AML) norms, it has actively assisted around 16 accused fintech companies in laundering the proceeds of crime using the crypto route. Therefore, equivalent movable assets to the extent of Rs 64.67 crore lying with WazirX were frozen under PMLA, 2002," the central agency said.
