WazirX episode has exposed darker side of crypto transactions: Govt source

New Delhi [India], August 11 : Emphasising that the WazirX episode has "exposed a darker side of crypto transactions" and exercising caution is necessary, a top government source on Thursday said that the enforcement directorate was looking into the matter.
"Exercising caution is necessary when dealing with cryptocurrencies. WazirX episode has exposed a darker side of crypto transactions. Enforcement Directorate is looking into it," a top Government source told ANI.
Enforcement Directorate (ED) raided the Director of WazirX Crypto-Currency Exchange and freezed its bank assets worth Rs 64.67 crore for assisting accused instant loan app companies in a laundering of fraud money via purchase and transfer of virtual crypto assets on August 5, 2022.
A top Government source told ANI that ED is looking into the matter. "Investors need to move cautiously as the Wazirx episode has raised a lot of issues on cryptocurrency trading," sources said.
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 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 the 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 applications have shut shops and diverted away the huge profits earned using the above modus operandi. While doing a fund trail investigation, ED found that a 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. It is seen that maximum amount of funds were diverted to WazirX exchange and the crypto-assets so purchased have been diverted to unknown foreign wallets.
A top Government source told ANI, "If there is any wrongdoing by Chinese companies, then enforcement agencies will tighten the noose."
Binance has said to have ceased support to off-chain fund transfers between WazirX and the company from August 11, 2022. Off-chain transfers are among the key issues cited by the probing agency in the money-laundering case, according to people aware of the development.
Patrick Hillmann, Chief Communications Officer, Binance, said in a press release, "As a result of the recent regulatory action taken against Zanmai Labs Pvt Ltd, in relation to their operations of the WazirX Exchange, it has come to our attention that some users were given to believe that funds deposited in WazirX were managed by Binance. This is not the case. In order to provide clarity and protection for users, we are removing the off-chain fund transfer channel between WazirX and Binance."
On August 9, Zanmai Lab released a statement, "WazirX is a platform co-operated by Zanmai Labs Pvt. Ltd. (Zanmai Labs) and Binance. Zanmai Labs has a no-tolerance policy towards any illegal activities using WazirX."
After this, Binance, a popular global cryptocurrency exchange platform distanced itself from the Indian exchange. Chief executive officer Changpeng Zhao said that Binance did not own a stake in WazirX's parent entity Zanmai Labs.
"As a result of the recent regulatory action taken against Zanmai Labs Pvt Ltd, in relation to their operations of the WazirX Exchange, it has come to our attention that some users were given to believe that funds deposited in WazirX were managed by Binance. This is not the case," said Patrick Hillmann, chief communications officer, Binance.