ED show-cause notice to cryptocurrency exchange WazirX for Rs 2,790-crore violations under FEMA

Enforcement Directorate (ED) on Friday said it has issued a show-cause notice to cryptocurrency exchange WazirX for foreign exchange management violations. “ED has issued Show Cause Notice to WazirX Crypto-currency Exchange for contravention of FEMA, 1999 for transactions involving crypto-currencies worth Rs 2,790.74 Crore,” the Enforcement Directorate said in a Twitter post. WazirX is a cryptocurrency exchange, which allows users to trade in cryptocurrencies such as Bitcoin, Ethereum, and others.

Directors of WazirX, Nischal Shetty and Sameer Hanuman Mhatre along with the company, have been named in the notice issued by the central probe agency after completion of an investigation, news agency PTI reported. The agency issued a statement saying that it stumbled upon the transactions of the company during an ongoing money laundering probe into the “Chinese-owned” illegal online betting applications.

ED in its notice said that accused Chinese nationals had laundered proceeds of crime worth about Rs 57 crore by converting Indian Rupee deposits into cryptocurrency tether (USDT) and then transferred it to Binance (exchange registered in the Cayman Islands). “In the period under investigation, users of WazirX via its pool account, have received incoming cryptocurrency worth Rs 880 crore from Binance accounts and transferred out cryptocurrency worth Rs 1,400 crore to Binance accounts,” the notice alleges. 

The probing agency said that WazirX does not collect the requisite documents from its customers, which is a clear violation of the anti-money laundering (AML) and combating financing of terrorism (CFT) norms and also FEMA guidelines. None of the said transactions are available on the blockchain for any audit or investigation, ED has claimed.

WazirX in a statement said that it was yet to receive any show cause notice from the ED. “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.” The crypto exchange further said that it is able to trace all its users on the platform with official identity information. “Should we receive a formal communication or notice from the ED, we’ll fully cooperate in the investigation,” they added.

India has said it is open to evaluate and explore new technologies like cryptocurrencies for improving governance. Reports suggest a Bill in this regard could be introduced in the coming Parliament session with recommendations made by a high-level internal ministerial committee on digital currencies.