India’s Enforcement Directorate (ED)—the country’s financial crime agency—has issued a show-cause notice to cryptocurrency exchange WazirX, and its co-founders Nischal Shetty and Sameer Hanuman Mhatre.
A show-cause notice is a court order that demands the recipient to clarify and prove something to the court.
In this case, the notice has been issued under the Foreign Exchange Management Act (FEMA)—which governs India’s approach to foreign exchanges and external payments—for transactions allegedly involving cryptocurrencies worth 27.90 billion rupees ($381 million).
ED has issued Show Cause Notice to WazirX Crypto-currency Exchange for contravention of FEMA, 1999 for transactions involving crypto-currencies worth Rs. 2790.74 Crore.
— ED (@dir_ed) June 11, 2021
The ED first announced the launch of the investigation via Twitter. The ED shared an official press release of the notice with the media, which Decrypt has seen.
WazirX, one of India’s largest crypto exchanges, was acquired by Binance in 2019. In the past 24 hours, $115 million has traded hands on the platform, according to CoinGecko.
Pryanka Sharma, WazirX’s director of communications, told Decrypt that the exchange has yet to “receive” the notice from the ED.
“As soon as we receive any formal notice or communication from ED, we’ll be able to have clarity on what is required from us,” Sharma said. “We’re yet to receive any formal notice or communication whether via email or post.”
Karishma Asoodani, a business correspondent with the English-language business and finance news outlet, ET Now, told Decrypt that it is “common and has happened before that ED makes a formal announcement while the notices are still in transit.”
Asoodani shared the ED’s official press release with Decrypt via email.
The WazirX investigation
According to the ED’s official press release, Chinese nationals had “laundered proceeds of crime with Rs 57 Crore ($7,800,000).”
The ED said that these Chinese nationals did so by converting rupee deposits into (USDT), then transferring Tether to Binance wallets.
“WazirX does not collect the requisite documents in clear violation of the basic mandatory anti-money laundering and combating of financing of terrorism precaution norms and FEMA guidelines,” the ED’s statement reads.
The financial crime agency also added that “WazirX clients could transfer ‘valuable’ cryptocurrencies 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/other illegitimate activities.”
WazirX’s public announcement disputed these claims, stating that the cryptocurrency exchange is “in compliance with all applicable laws.”
Statement on today's news:
WazirX is yet to receive any show cause notice from the Enforcement Directorate as mentioned in today's media reports. WazirX is in compliance with all applicable laws. We go beyond our legal obligations by following Know Your Customer (KYC) and
— WazirX: BTC & Cryptocurrency Exchange in India (@WazirXIndia) June 11, 2021
Additional reporting by Liam J. Kelly.