India largest cryptocurrency exchange Wazir X was issued a show cause notice on Friday for violation of foreign exchange regulations for undertaking transactions worth over Rs 2,790 crore.

India’s financial crime-fighting agency discovered the company’s financial transactions during the investigation on the ongoing money laundering by “Chinese-owned" illegal online betting applications. Under Foreign Exchange Management Act (FEMA), 1999, a show cause notice was issued right after that to the country's largest cryptocurrency exchange.

ED says, "The accused Chinese nationals had laundered Rs 57 crore by converting Indian Rupee deposits into cryptocurrency and then transferred it to Binance, a cryptocurrency exchange registered in Cayman Islands based on instructions received from a foreign country,"

Mumbai based Wazir-X, owned by the world's largest cryptocurrency exchange Binance has denied all allegations and said they are "in compliance with all applicable laws".

The notice by the ED has named WazirX and directors Nischal Shetty and Sameer Hanuman Mhatre. Nischal Shetty has declined all allegations and Twitted that Wazir X has not received any show cause notice from the Enforcement Directorate(ED) as mentioned in news reports.

Wazir X is India’s most trusted Bitcoin & Cryptocurrency Exchange platform that allows trading in digital currencies such as Bitcoin, Ethereum and many others. "WazirX allows a wide range of transactions with virtual currencies, including their exchange with rupee and vice-versa, exchange of virtual currencies, person to person transactions and even transfer or receipt of digital currency held in its pool accounts to wallets of other exchanges, which could be held by foreigners in foreigners overseas," the ED alleged.

The agency alleged that Wazir X has no proper documentation on the users who transfer cryptocurrencies to any person irrespective of their location and nationality. The main concern is the untraceable transaction which attracts money laundering and other illegal activities.

"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," WazirX CEO Nischal Shetty posted on his Twitter handle.

He adds, "All the transactions on the platform are traceable with official identity information."

"If we receive a formal notice from the Enforcement Directorate, we will fully cooperate in the investigation," Shetty said.

The show-cause notice was issued to the company after ED found out the transactions by the WazirX clients were not available on the blockchain for any investigation or audit, which is a clear violation of FEMA rules.

A bill could be introduced by the Indian government in the parliament regarding the use of Virtual currencies. The government is open to new technology to improve governance.

Pavan A

CBW - External Analyst

INDIA