WazirX gets a show cause notice from Enforcement Directorate for cryptocurrency transactions worth ₹2,790 cr

WazirX, the Indian cryptocurrency exchange, has been served a show-cause notice by the Enforcement Directorate (ED) for “contravention of the FEMA (Foreign Exchange Management Act), 1999” for cryptocurrency transactions worth ₹2,790.74 crores. ED shared this news via a tweet on Friday and also said in a press release that Chinese nationals had used WazirX to “launder gambling proceeds worth ₹57 crores”.

Launched in 2018, WazirX is an app/website where you can buy and sell cryptocurrencies while making transactions in rupees. While the legality of cryptocurrencies in India has been in flux for a while, there is a lot of interest in them as an investment option. Cryptocurrency has also been used for illegal payments, particularly on the Dark Web since funds are hard to track through cryptocurrency transactions.

WazirX responded to a query regarding this and stated that they had not received any show-cause notice yet. They also said that there has been no non-compliance from their end.

"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. We are able to trace all users on our platform with official identity information. Should we receive a formal communication or notice from the ED, we'll fully cooperate in the investigation,” Nischal Shetty, CEO, and founder, WazirX said. He also tweeted this, adding that user’s “funds are safe at WazirX” and that there was no need to worry about the funds.

FEMA, the act that ED is accusing WazirX of contravening, was created in 1999 and is meant to “consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India".

As per the press release shared by the ED, the show cause notice has been sent to M/s Zanmani Labs Pvt Ltd (WazirX) its directors. The directorate also said that they have started investigating money laundering operations run by Chinese-owned illegal online betting apps and has alleged that these Chinese nationals have laundered ₹57 crores worth of money through WazirX using the cryptocurrency called Tether.

“During the course of the investigation, it was seen that the accused Chinese nationals had laundered proceeds of crime worth ₹57 Crore approximately by converting the INR deposits into Crypto-currency Tether (USDT) and then transferring the same to Binance (exchange registered in Cayman Islands) Wallets based on instructions received from abroad,” the statement said.

"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/ other illegal activities," ED added in the statement.