The FEMA inquiry was initiated by the Enforcement Directorate in response to an ongoing money laundering inquiry against Chinese-owned “illegal” online betting applications.
On June 11, the Enforcement Directorate (ED) issued a show-cause notice to WazirX and its directors Nischal Shetty and Sameer Mhatre.
The agency stated in a statement on its official Twitter handle on Friday that the show cause notice was issued for violations of the Foreign Exchange Management Act 1999 for transactions involving cryptocurrencies worth Rs 2,790.74 crore.
The FEMA inquiry was launched by the ED in response to an ongoing money laundering inquiry into Chinese-owned “illegal” online betting programs, according to a statement from the agency.
According to the law enforcement agency, the accused Chinese nationals laundered approximately Rs 57 crore in criminal proceeds by converting Indian Rupee deposits into cryptocurrency Tether and then transferring them to Binance Wallet, a Cayman Islands-registered exchange, based on “instructions received from abroad.”
During the investigation period, customers of WazirX via its pool account received inbound bitcoin worth Rs 880 crore from Binance accounts and moved out digital currencies worth Rs 1,400 crore to Binance accounts, according to the ED. “None of these transactions are available on the blockchain for any audit/investigation,” ED said.
The platform supports cryptocurrency transactions such as digital currency exchange for Indian rupees and vice versa, as well as the cryptocurrency exchange and person-to-person transactions.; and the transfer or receipt of cryptocurrencies held in its pool accounts to wallets of other exchanges, which, according to the ED, could be held by foreigners overseas.
The ED stated in a statement that WazirX “clearly violates the fundamental necessary Anti Money Laundering (AML) and Combating of Financing of Terrorism (CFT) cautious regulations and FEMA recommendations” by failing to acquire required paperwork.
“It was discovered that WazirX clients may send ‘valuable’ cryptocurrency to anybody, regardless of their location or country, without any required paperwork whatsoever,” the ED said, “making it a safe refuge for those searching for money laundering/other illegal activities.”
The Reserve Bank of India has directed banks to carry out appropriate customer due diligence in compliance with legislation controlling Know Your Customer requirements (KYC), Anti-Money Laundering (AML), Counter-Terrorism Financing (CFT), and regulated entity obligations under the Prevention of Money Laundering Act (PMLA), 2002.
Banks must also abide FEMA regulations for offshore remittances, according to the RBI.
Also read: Is it safe to invest in cryptocurrency in India after RBI clarification?
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