According to a note by the Enforcement Directorate, WazirX was being used by foreigners to launder gambling proceeds. The ED says that Chinese nationals used the crypto exchange to launder Rs. 57 crore, and noted that users can transfer money without proper d…

Leading Indian cryptocurrency exchange WazirX has received a show cause notice from the Enforcement Directorate (ED) for contravention of the FEMA, 1999, for cryptocurrency transactions worth Rs. 2,790.74 crore, the enforcement agency shared in a tweet on Friday. The enforcement agency in a press release added that Chinese nationals had used the crypto exchange to launder gambling proceeds worth Rs. 57 crore.
WazirX is an Indian cryptocurrency exchange in India that was launched in 2018. Users can go to WazirX to buy and sell Bitcoin, as well as other cryptocurrencies, while spending in Rupees. Although the status of cryptocurrencies in India was in flux for some time, there has been a lot of interest in these tokens as an investment option.
However, cryptocurrency has also been used in the past for illegal payments including, infamously, payments on the Dark Web, since it’s harder to track the movement of funds through cryptocurrency. In the tweet posted by the ED, the agency stated: “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.”
In response to a query from Gadgets 360, WazirX replied to state that it has not received the show cause notice so far. It also denied any non-compliance from the company. “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, Nischal Shetty, CEO and founder, WazirX said in an emailed statement, which he also tweeted.
FEMA is the Foreign Exchange Management Act of 1999, which is meant “to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.”
According to the press release from the ED, the Show Cause Notice (SCN) has been sent to M/s Zanmani Labs Pvt Ltd (WazirX) its directors. The ED started investigating money laundering operations by Chinese-owned illegal online betting apps, and alleged that these Chinese nationals laundered Rs. 57 crore worth through WazirX, buying the cryptocurrency 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.
“It was found that the WazirX Clients could transfer ‘valuable’ cryptocurrencies to any person irrespective of its location and nationality without any proper documentation whatsoever, making it a safe haven for users looking for money laundering/ other illegal activities,” it added.
Earlier this month, the Reserve Bank of India (RBI) asked Indian banks to not refer to its 2018 circular on cryptocurrency. In 2018, the RBI had asked banks not to deal in virtual currencies. However, last year in 2020, the Supreme Court had squashed this ban, and so in June the RBI issued a fresh order asking banks to stop using the 2018 circular.
However, at the time, the RBI also asked banks to continue to follow other safeguards. The RBI said that banks as well as other financial entities still have to carry out due diligence processes in line with regulations governing standards for Know Your Customer (KYC), Anti-Money Laundering (AML), Combating of Financing of Terrorism (CFT), and obligations of regulated entities under the Prevention of Money Laundering Act (PMLA) in addition to ensuring compliance with relevant provisions under FEMA for overseas remittances.
In an earlier conversation with Gadgets 360, TechArc chief analyst, Faisal Kawoosa said, Cryptocurrency is a reality. We can’t deny it. It’s good to see that India is making early inroads into it. However, the concern is ambiguity around its legality. I think we need to have a clear vision about that so that all have confidence to grow it and benefit from it.
With this latest development, the regulatory position around cryptocurrency appears to be a little unclear, as cryptocurrency can be traded internationally without much difficulty, and this could create complications for companies that are trying to maintain records within India.
Interested in cryptocurrency? We discuss all things crypto with WazirX CEO Nischal Shetty and WeekendInvesting founder Alok Jain on Orbital, the Gadgets 360 podcast. Orbital is available on Apple Podcasts, Google Podcasts, Spotify, Amazon Music and wherever you get your podcasts.