The Enforcement Directorate has conducted searches on one of the directors of Zanmai Lab Private Limited, which owns the popular cryptocurrency exchange WazirX. The financial probe agency has issued an order to freeze their bank balances to the tune of Rs 64.67 crore.
The ED is conducting a money laundering investigation against a number of Indian Non-Banking Financial Company (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.
The agency said various fintech companies backed by Chinese funds could not get NBFC license from RBI for carrying lending business and so they devised the MoU route with defunct NBFCs to piggyback on their license.
After the criminal investigation began, many of these fintech apps shut shop and diverted away the huge profits earned using the above modus operandi. While doing a fund trial investigation, the ED found that large amount 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 by the financial probe agency. It is seen that the maximum amount of funds were diverted to WazirX exchange and the crypto-assets so purchased have been diverted to unknown foreign wallets, ED said.
The ED said, “Zanmai Labs Pvt Ltd – the company owning WazirX Crypto Exchange – 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 Mr Nischal Shetty had claimed that WazirX is an Indian Exchange which controls all the crypto-crypto & inr-crypto transactions and only has an IP & 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 & ambiguous answers to evade oversight by Indian regulatory agencies,” the central agency observed during investigation.
WazirX works from a Cloud-based software and all employees work from home.
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.
As per ED, 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.
Because of the non-cooperative stand of the Director of WazirX exchange, a search operation was conducted by ED under PMLA on August 3.
ED said, “It was found that Sameer Mhatre, director of 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 lax KYC norms, loose regulatory control of transactions between WazirX & Binance, non-recording of transactions on blockchain 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, 2002,” the central agency added.