The Enforcement Directorate (ED) of India, a law enforcement organization that investigates financial crimes, has blocked bank funds totaling 647 million rupees (about $8 million) belonging to WazirX, a local cryptocurrency exchange controlled by Binance.
According to a statement issued on Friday, the ED conducted searches on WazirX co-founder and CTO Sameer Mhatre as part of its money laundering investigation into the exchange.
Since last year, the ED has been investigating WazirX for its alleged money laundering activities in connection with Chinese loan apps engaging in digital lending in India.
Since 2019, most Chinese businesses have reportedly entered the lending market in India by building fintech applications, but because the Reserve Bank of India (RBI) has not granted them a non-banking financial company (NBFC) license, they have made arrangements with local NBFCs.
As a result, the ED has recently been investigating some Indian NBFCs and their fintech partners "for predatory lending practices in violation of the RBI guidelines and by using tele-callers who misuse personal data and use abusive language to extort high-interest rates from loan takers," according to the agency's announcement on Friday.
After the investigations began, many of these fintech apps shut down and diverted away "huge profits" through various routes, including crypto, according to ED.
"ED found that large amount of funds were diverted by the fintech companies to purchase crypto assets and then launder them abroad," reads the announcement. "These companies and the virtual assets are untraceable at the moment."
As part of its inquiry, the ED summoned crypto exchanges and discovered that "the highest amount of funds were redirected to WazirX exchange and the crypto-assets so obtained were moved to unknown foreign wallets."
WazirX and Mhatre have been uncooperative in helping to trace those funds, according to ED. Mhatre has "complete remote access to the database of WazirX, but despite that he is not providing the details of the transactions relating to the crypto assets, purchased from the proceeds of crime of Instant Loan APP fraud," ED said.
It went on to say that
"the lax KYC [know your customer] norms, loose regulatory control of transactions between WazirX and Binance, non-recording of transactions on blockchains to save costs and non recording of the KYC of the opposite wallets has ensured that WazirX is not able to give any account for the missing crypto assets."
WazirX has also made no efforts to trace crypto assets and Binance "rarely responds to queries on firstname.lastname@example.org," according to ED.
WazirX and Binance did not respond to The Block's requests for comment by press time.