India’s crypto trade secrets are exposed by the WazirX incident

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The Enforcement Directorate said that it had searched one of the directors of Zanmai Labs, which controls WazirX, and had ordered bank accounts totaling Rs 64.67 crore to be frozen, which brought attention to India’s largest cryptocurrency exchange. For alleged money laundering, WazirX is being looked into.

What happened and how?

On August 5, the Directorate of Enforcement (ED) searched one of the directors of M/s Zanmai Lab Pvt Ltd, the company that owns WazirX, and froze its bank accounts, preventing the transfer of Rs 64.67 crore.

Later, on August 6, Binance CEO Changpeng Zhao claimed in a string of tweets that the Binance-Wazir-X deal had fallen through and that Binance was not the owner of Wazir-X. On November 21, 2019, Binance published a blog post announcing the acquisition of WazirX. The post described how platform users would be able to purchase cryptocurrencies using Indian rupees (INR), invest in stable coins like Tether (USDT), and access a wide variety of cryptocurrencies directly through Binance’s trading platforms once Binance acquired WazirX.

Binance CEO Tweets

However, Binance CEO Changpeng Zhao made it clear in a series of tweets that Binance does not own any equity in Zanmai Labs and solely offers wallet services to WazirX as technological advancement. Nischal Shetty, the CEO of WazirX, went on to say that Zanmai Labs is a different organization and that Binance owns the WazirX domain, has root access to the AWS servers, and is the sole owner of all revenues and crypto assets held on the site. Shetty added that Binance has granted Zanmai Labs a license to run rupee-crypto pairs, adding that Binance also runs crypto-to-crypto pairs and handles cryptocurrency withdrawals for the business.

Soon after, Binance disabled the feature that allowed users to shift money from WazirX to the Binance app.

What is this investigation about?

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The probe is a component of the ED’s investigation into claims of money laundering against a number of non-banking financing companies and their fintech partners, who have also been accused of engaging in predatory lending through loan apps. The businesses employ telemarketers who abuse personal information to coerce borrowers into paying exorbitant interest rates. The fintech companies backed by Chinese money were unable to obtain NBFC licenses from the RBI to lend money, so they signed MOUs with defunct NBFCs to exploit their licenses instead.

Many of these fintech apps stopped when the criminal probe started and diverted profits utilizing the aforementioned methods. ED discovered that a significant quantity of money was diverted by fintech companies to buy Crypto assets and subsequently launder them abroad while conducting the fund trail inquiry. Currently, it is impossible to track down these businesses or their virtual assets. There were summons sent to the crypto exchanges. According to ED’s press release, the greatest amount of money was redirected to the WazirX exchange, and the crypto assets that were purchased with that money were then transferred to unidentified international wallets.

WazirX’s trading volume decreased from $4.3 million on August 5 to $2 million on August 9, according to secondary research firm CREBACO data.

The Operating Procedure

For allegedly leveraging the proceeds of crime from the businesses accused in the instant loan app case to launder more than Rs 1,000 crore, the agency is investigating at least ten cryptocurrency exchanges. The Economic Times reports that the ED investigation has uncovered instances where the accused firms approached exchanges to buy cryptocurrency coins for more than Rs 100 crore and move the coins to foreign wallets. Fintech is allegedly employed by the accused app-based loan firms to accept payments. The accruing proceeds were then moved using cryptocurrency outside of the nation. The main issue is that once money is transferred to a wallet abroad, it can no longer be tracked.

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The ED claims that WazirX is unable or unwilling to provide information about these transactions.

WazirX, a cryptocurrency exchange that has been embroiled in a legal battle with Binance over ownership, has seen trading volumes drop by more than 54%. This happens at a time when Indian exchange trading volumes are already at their lowest.

WazirX’s trading volume decreased from $4.3 million on August 5 to $2 million on August 9, according to secondary research firm CREBACO data.

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