The Enforcement Directorate (ED) has conducted searches on one of the Directors of Mumbai based company M/s Zanmai Lab Pvt Ltd which owns the popular crypto-currency exchange WazirX and has issued a freezing order to freeze their bank balances to the tune of Rs 64.67 crore for assisting accused Instant Loan APP Companies in allegedly laundering of fraud money via purchase and transfer of virtual crypto assets, agency officials informed on Friday.
The 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 by using tele-callers who allegedly 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 NBFC license from RBI for carrying out lending business. So they devised the MoU route with defunct NBFCs to piggyback on their license. After the criminal investigation began, many of these fintech APPs have shut shop and diverted away the huge profits earned using the above modus operandi," said an agency official.
While doing fund trail investigation, ED found that large amounts of funds were diverted by the fintech companies to purchase crypto assets and then launder them abroad. These companies and the virtual assets are untraceable at the moment. "Summons were issued to the crypto-exchanges. It is seen that the maximum amount of funds were diverted to WazirX exchange and the crypto-assets purchased have been diverted to unknown foreign wallets," the agency officials claimed.
"The investigations carried out by the ED have learnt that Zanmai Labs Pvt Ltd has created a web of agreements with -- Crowdfire Inc. USA, Binance (Cayman Islands), 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 which 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 the other transactions are done by Binance on WazirX. They are giving contradictory and ambiguous answers to evade oversight by Indian regulatory agencies," the ED claimed in a statement.
"WazirX works from a Cloud based software (@AWS Mumbai), all employees work from home, the registered office is a two 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 their official email ID. Despite giving repeated opportunities, WazirX failed to give the crypto transactions of the suspect fintech APP companies and reveal the KYC of the wallets. Most of the transactions are not recorded on the blockchain also," the statement read.
"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. Because of the non-cooperative stand of the Director of WazirX exchange, a search
operation was conducted under PMLA on Wednesday and it was found that Sameer Mhatre, Director WazirX, has complete remote access to the database of WazirX, but despite that he is not providing the details of the transactions relating to the crypto assets, purchased from the proceeds of crime of Instant Loan APP fraud," the agency claimed in their statement.
The 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 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 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, the officials claimed.
"We have been fully cooperating with the Enforcement Directorate(ED) for several days and have responded to all their queries fully and transparently. We do not agree with the allegations in the ED press release. We are evaluating our further plan of action," said a WazirX spokesperson.