The Enforcement Directorate (ED) released a statement on Twitter that a show cause notice to an Indian cryptocurrency exchange WazirX has been issued.
The cause is contravention of FEMA (Foreign Exchange Management Act), 1999.
The issue involves cryptocurrencies worth Rs 2,790.74 crore.
The department is conducting an ongoing investigation regarding money laundering into the Chinese-owned illegal online betting application, claimed ED in a statement.
WazirX was incorporated in India in December 2017 under a company named Zanmai Labs Private Limited as a domestic cryptocurrency startup.
The company, including its directors Nischal Shetty and Hanuman Mhatre have been included in the notice. Further, global cryptocurrency exchange Binance had acquired WazirX in 2019.
Nischal Shetty, Founder and CEO of WazirX claimed on Twitter that his company is yet to receive any show cause notice and also mentioned that his company is in compliance with all applicable laws.
He continued that they go beyond the legal obligations by following KYC (Know Your Customer) and AML (Anti Money Laundering) processes. He further mentioned that their company has always provided information to law enforcement agencies whenever required.
However, ED claimed that the company does not collect the requisite documents. Not collecting this documentation is a clear violation of AML, combating financing of terrorism (CFT) and FEMA.
“During the course of the investigation, it was seen that the accused Chinese nationals had laundered proceeds of crime worth ₹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,” ED said in the statement.
Specifically, a wide range of transactions with cryptocurrencies which could be held by foreigners in foreign locations is something which the ED is not okay with.
"In the period under investigation, users of WazirX via its pool account, have received incoming cryptocurrency worth ₹880 crore from Binance accounts and transferred out cryptocurrency worth ₹1,400 crore to Binance accounts. None of these transactions are available on the blockchain for any audit or investigation," it claimed.
ED claimed that WazirX Clients could transfer ‘valuable’ cryptocurrencies without requiring any documentation to anyone in any part of the world without any regard to nationality. This made it a safe haven for users looking for money laundering and other illegitimate activites.