Indian authorities freeze $8.1M in WazirX funds as part of AML investigation

The Directorate of Enforcement of India alleged that WazirX "actively assisted around 16 accused fintech companies in laundering the proceeds of crime using the crypto route."

India’s Directorate of Enforcement, or ED, has announced it froze roughly $8.1 million in funds and conducted a search connected to cryptocurrency exchange WazirX as part of an investigation into instant personal loan fraud.

In a Friday announcement, the Directorate of Enforcement alleged WazirX facilitated transactions by unnamed fintech firms “to purchase crypto assets and then launder them abroad” as part of a scheme involving Chinese-backed companies circumventing India’s licensing regulations. In its investigation, the ED said it ordered WazirX bank accounts containing 646.7 million Indian rupees — roughly $8.1 million at the time of publication — frozen and conducted a search connected to co-founder Sameer Mhatre.

According to the regulator, the investigation was still ongoing. However, the ED claimed the crypto exchange had “lax KYC norms” and “loose regulatory control” of transactions between WazirX and Binance, and did not record the information needed to verify the origin of the funds used to purchase crypto in the alleged fraud.

“Despite giving repeated opportunities, WazirX failed to give the crypto transactions of the suspect fintech APP companies and reveal the KYC of the wallets,” said the ED, adding:

“WazirX is not able to give any account for the missing crypto assets. It has made no efforts to trace these crypto assets. By encouraging obscurity and having lax AML norms, it has actively assisted around 16 accused fintech companies in laundering the proceeds of crime using the crypto route.”

ED searches the Director of WazirX Crypto-Currency Exchange & freezes its Bank assets worth Rs 64.67 Crore for assisting accused Instant Loan APP Companies in laundering of fraud money via purchase & transfer of virtual crypto assets.

— ED (@dir_ed) August 5, 2022

In a Friday Twitter thread, Binance CEO Changpeng Zhao said the firm did "not own any equity in Zanmai Labs, the entity operating WazirX and established by the original founders." He added that "Binance only provides wallet services for WazirX as a tech solution," while WazirX was responsible for KYC and other operations on the exchange. 

WazirX director Nischal Shetty disputed many of CZ's claims, saying on Twitter that the crypto exchange "was acquired by Binance Zanmai Labs" and "is an India entity owned by me & my co-founders". He  said Binance was responsible for operating crypto trading pairs and processing withdrawals.

Related: Indian regulator probes crypto exchange for alleged forex law violations

With the exodus of many crypto firms in China following a regulatory crackdown, many companies have reportedly turned to the markets in India. The ED reported that some fintech firms “backed by Chinese funds” had “piggybacked” on Indian companies with defunct non-banking financial company licenses to offer lending services to residents.

The ED took similar action against WazirX in June 2021, ordering the crypto exchange to show cause related to transactions of a money-laundering investigation into illegal online betting applications involving Chinese nationals. Shetty said at the time that the exchange went “beyond [its] 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.”

Cointelegraph reached out to WazirX, but did not receive a response at the time of publication.