Enforcement Directorate Issues Show Cause Notice To India-Based Crypto Exchange WazirX

Table of Contents

• Money-Laundering Investigations Lead To Show Cause Notice
• ED Claims WazirX Crypto Transactions Violate FEMA Guidelines
• WazirX Director Denies Reports; Claims Full Compliance
• India’s Rocky History With Cryptocurrency

India’s Enforcement Directorate (ED) has issued a show-cause notice to Mumbai-based and Binance-owned cryptocurrency exchange WazirX under FEMA (Foreign Exchange Management Act). The notice was issued as a part of the ED’s investigation of Chinese-owned online betting applications on allegations of money laundering. 

Money-Laundering Investigations Lead To Show Cause Notice

In a tweet from their official account, ED clarified further that the notice had been issued under the Foreign Exchange Management Act (FEMA), 1999, for transactions involving cryptocurrencies worth Rs 27.91 billion ($382 million). Times Of India reported that both the company directors Nischal Shetty and Hanuam Mhatre were named in the notice along with the company. The FEMA investigation was launched to look further into money-laundering allegations of Chinese-owned illegal betting applications. 

ED Claims WazirX Crypto Transactions Violate FEMA Guidelines

TOI cited an ED statement that said, 

“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 cryptocurrency Tether (USDT (+0.02%)) and then transferring the same to Binance wallets based on instructions received from abroad”

It is worth mentioning that Binance is an exchange based in the Cayman Islands and had acquired WazirX back in 2019.

Furthermore, according to the ED statement, WazirX received crypto worth Rs 8.8 billion ($120 million) from Binance accounts and transferred out crypto worth Rs 14 billion ($191 million) to Binance accounts, all during the investigation period. 

The ED statement further clarified that WazirX did not collect the required documents necessary to transfer funds of this magnitude, which violates anti-money laundering norms, combating terrorism funding precaution norms, and basic FEMA guidelines. The agency stated, 

“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 or other illegitimate activities.”

WazirX Director Denies Reports; Claims Full Compliance

WazirX Founder and CEO, Nischal Shetty denied the reports of show cause notice, by tweeting, 

“WazirX is yet to receive any show cause notice from the Enforcement Directorate as mentioned in today's media reports. WazirX is in compliance with all applicable laws.”

He further clarified claims of improper documentation saying that they have conducted KYC (know your customer) and AML (anti-money laundering) processes for every single WazirX account. He promised to fully cooperate with the officials and provide the details to law enforcement if they receive any formal communication or notice from the ED.

India’s Rocky History With Cryptocurrency

Unfortunately, this was not the first time that controversy followed crypto in India. Back in 2018, the RBI issued circular banning banks and NBFCs from providing any services associated with cryptocurrency, claiming national security risks. Later in 2019, an inter-ministerial panel set up to look into the issues of virtual currencies suggests a complete ban on "private cryptocurrencies," but opens the door for a possible official digital rupee. 

The Supreme Court overruled the RBI and gave banks and financial institutions permission to deal with cryptocurrency in 2020. However, in 2021, the Centre fluctuated between banning all cryptocurrencies, considering establishing an official digital currency, and changing track to explore cryptocurrency as new technology to improve governance. 

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.