ED Notice to WazirX, On FEMA Breach of Cryptocurrency Transactions

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Enforcement Directorate (ED) has issued a notice on FEMA violations to India’s leading cryptocurrency exchange, WazirX for cryptocurrency transactions worth Rs 2,790-crore. WazirX is the largest cryptocurrency exchange in India established in 2017 and its headquarters located in Mumbai. The parent company of WazirX is Binance, a Cayman Islands-domiciled cryptocurrency exchange. WazirX allows users to trade in different digital currencies such as Ethereum, Bitcoin, and others.

ED has posted on Twitter that it has served a notice to the WazirX for contravention of FEMA, 1999 related to cryptocurrencies transactions worth Rs 2,790.74 Crore. FEMA is the Foreign Exchange Management Act of 1999, enacted by the Parliament of India, which deals with the law regarding foreign exchange for enabling smooth transactions on external trade and payments for ensuring law and order in the foreign exchange market in India.

The central agency has issued the notice stating the name of the directors of WazirX Nischal Shetty and Sameer Hanuman Mhatre after completion of an investigation on an ongoing money laundering issue related to “Chinese-owned” illegal online gambling applications. ED has alleged that the Chinese users had done money laundering for transactions worth Rs 57 crore by converting INR deposits into cryptocurrency tether (USDT) and then transferred it to Binance (exchange registered in the Cayman Islands). It is found that during the period of investigation the users of WazirX through its pool account received cryptocurrency worth Rs 880 crore from the Binance accounts and transmitted cryptocurrency worth Rs 1,400 crore to Binance accounts. These transactions were not available on the blockchain to audit or make an investigation.

It is also identified that WazirX allows clients to transfer cryptocurrencies anywhere and to any nation without adequate documentation which helps those who look for money laundering or illegitimate activities. This indicates a clear breach of the anti-money laundering (AML) and combating financing of terrorism (CFT) rules and also FEMA guidelines.

However, the company said that it is yet to get any show-cause notice from the ED. The company stated that it is fully complied with all laws and has KYC and AML check in its operations. The company said that it is possible to track all users on the platform with official identity information and will corporate with ED for the investigation.

It is reported that India will introduce a bill for improving governance on cryptocurrencies in the upcoming Parliament session which includes recommendations put forward by a high-level internal ministerial committee on cryptocurrencies.

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