The total value of the frozen assets amounts to USD 8.15 million in bank deposits belonging to Zanmai Lab, the operating company behind WazirX. The freeze stemmed from India’s Directorate of Enforcement’s (ED) investigation into predatory loan companies that reportedly used local crypto exchanges to launder their ill-gotten gains.
The ED’s investigation targeted several non-banking financial companies (NBFC) that were engaging in lending practices in violation of the Reserve Bank of India guidelines and by using tele-callers who misuse personal data and use abusive language to extort high interest rates from the loan takers.
As representatives from ED say, various fintech companies backed by Chinese funds that were unable to procure NBFC licenses struck deals with defunct NBFCs to use their licenses. The ED said large amount of funds were diverted by the fintech companies to purchase crypto assets and then laundered abroad. The bulk of the laundered cash was funnelled through WazirX and diverted to unknown foreign wallets.
The ED noted that Zanmai Labs created ‘a web of agreements’ with companies including Binance in the Cayman Islands to obscure the ownership of the crypto exchange. Zanmai officials were not able to convince ED officials with their answers regarding Binance’s role in WazirX’s day-to-day operations.
Despite having the opportunity to do it, WazirX failed to perform the necessary ‘know your customer’ (KYC) requirements on exchange transactions. Prior to July 2020, they did not record the details of the bank account from which funds were coming into the exchange to purchase crypto assets. No physical address verification was done either. There was also no check on the source of funds of their clients. The company didn’t engage in enhanced due diligence and raised no suspicious transaction reports.
As ED points out, WazirX’s director has complete remote access to the exchange’s database but reportedly refused to hand over details of the suspect accounts to the ED. India’s Ministry of Finance officials previously announced that the ED was probing WazirX/Binance for suspected violations of the Foreign Exchange Management Act. The Ministry stated that no crypto transactions between the two exchanges were being recorded on the blockchains and were thus cloaked in mystery.
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