The Enforcement Directorate (ED) on Friday said it has issued a show cause notice to the country's largest cryptocurrency exchange for undertaking transactions worth over Rs 2,790 crore in alleged violation of the Foreign Exchange Management Act (FEMA).
Mumbai headquartered WazirX is as a domestic crypto currency and bitcoin exchange start-up registered under the company name Zanmai Labs Pvt Ltd that was incorporated in December, 2017.
The notice issued by the central probe agency under various sections of the FEMA names the exchange (WazirX), the company and directors Nischal Shetty and Sameer Hanuman Mhatre.
The exchange and its promoters denied any wrongdoing and said they are "in compliance with all applicable laws".
The ED issued a statement saying that it stumbled upon the transactions of the exchange during an ongoing money laundering probe into "Chinese-owned" illegal online betting applications.
The show cause notice is for transactions worth Rs 2,790.74 crore, the ED said.
Shetty, also the CEO of the exchange, took to Twitter and said WazirX was yet to receive any show cause notice from the ED as mentioned in media reports.
"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," he posted on his handle.
He added: "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," Shetty said.
In its statement, The ED described in detail its investigation
"It was seen that the accused Chinese nationals had laundered proceeds of crime worth about Rs 57 crore by converting Indian Rupee (INR) deposits into cryptocurrency tether (USDT) and then transferred it to Binance (exchange registered in Cayman Islands) Wallets based on instructions received from abroad," it said.
Binance is considered a market leader in this domain and had acquired WazirX in 2019.
"WazirX allows a wide range of transactions with crypto currencies (CC), including their exchange with INR and vice-versa, exchange of CCs, person to person (P2P) transactions and even transfer/receipt of crypto currency held in its pool accounts to wallets of other exchanges, which could be held by foreigners in foreign locations," the ED alleged.
WazirX, it alleged, "does not" collect the requisite documents in clear violation of the basic mandatory anti-money Laundering (AML) and combating financing of terrorism (CFT) norms and also FEMA guidelines.
"In the period under investigation, users of WazirX via its pool account, have received incoming cryptocurrency worth Rs 880 crore from Binance accounts and transferred out cryptocurrency worth Rs 1,400 crore to Binance accounts.
"None of these transactions are available on the blockchain for any audit or investigation," the ED claimed.
It was found that WazirX clients could transfer 'valuable' crypto currencies 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 and other illegitimate activities, the agency alleged.
The show cause notice was issued to the company, following the investigation of these alleged violations and as stated to be contravention of the FEMA, official sources said.
The Indian government has said that it was open to evaluate and explore new technologies like crypto currencies for improving governance.
A Bill in this regard could be introduced in the Parliament and recommendations made by a high-level internal ministerial committee on digital currencies could be included, the government has said.
