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NEW DELHI: The Enforcement Directorate (ED) has issued a show-cause notice to WazirX, India’s biggest cryptocurrency exchange by trading volume, for allegedly violating provisions of the Foreign Exchange Management Act, or Fema, for cryptocurrency deals worth 2,790.74 crore.

The notice has been sent to the company as well as its directors, Nischal Shetty and Hanuman Mhatre, on Friday following an ongoing probe into money laundering by Chinese-owned illegal online betting applications.

Started in 2018, WazirX, registered as Zanmai Labs Pvt. Ltd, was acquired by Cayman Islands-based crypto exchange Binance in 2019. The company has around 5 million registered users in India.

The economic intelligence agency of the finance ministry alleged that during its investigation, it discovered that some Chinese nationals laundered proceeds of crime totalling around 57 crore by converting rupee deposits into cryptocurrency tether (USDT) and then transferring the same to Binance wallets based on instructions received from abroad. The agency did not identify the Chinese nationals.

Some of the high-value traders of WazirX were issued a summons by the agency in March. Queries emailed to WazirX regarding the summons remained unanswered.

“In the period under investigation, users of WazirX via its pool account have received incoming cryptocurrency worth 880 crore from Binance accounts and transferred out cryptocurrency worth 1,400 crore to Binance accounts. None of these transactions are available on the blockchain for audit or investigation," the ED alleged.

WazirX also allegedly did not collect requisite documents, which, as per the agency, is in violation of the basic mandatory anti-money laundering (AML) and combating the financing of terrorism norms and also Fema guidelines.

Responding to ED’s charge, WazirX said it was yet to receive a show-cause notice and asserted that the exchange was in compliance with all the applicable laws. “We go beyond our legal obligations by following know your customer (KYC) and AML processes and have always provided information to law enforcement authorities whenever required. We are able to trace all users on our platform with official identity information. Should we receive a formal communication or notice from ED, we’ll fully cooperate," said Shetty, also the chief executive officer of WazirX, in a statement. He also assured investors that their funds are safe.

ED alleged WazirX allows a wide range of transactions with cryptocurrencies, including exchange of cryptocurrencies with rupee and vice-versa, person to person (P2P) transactions and even transfer/receipt of cryptocurrency held in its pool accounts to wallets of other exchanges that could be held by foreigners abroad.

The agency said it found WazirX’s clients could transfer cryptocurrencies irrespective of location and nationality without proper documentation, making it a safe haven for users looking for illegitimate activities.

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