ED Freezes Wazirx's Bank Assets Worth INR 65 Cr for Money Laundering

ED Freezes Wazirx's Bank Assets Worth INR 65 Cr for Money Laundering

The Directorate of Enforcement (ED) has frozen bank assets of more than USD 8 million from a major Indian crypto exchange, Wazirx, for alleged money laundering. The exchange was supposedly acquired by Binance in 2019. However, Binance CEO Changpeng Zhao (CZ) now claims that the acquisition was "never completed." Wazirx, however, maintains that it was acquired by Binance.

ED’s Action Against Wazirx

The Directorate of Enforcement (ED) issued a press release on the freeze of crypto exchange Wazirx’s bank assets on Friday. ED is the law enforcement and economic intelligence agency of the Government of India. The announcement details,

"The Directorate of Enforcement (ED) has conducted searches on one of the Directors of M/s Zanmai Lab Pvt Ltd, which owns the popular crypto exchange Wazirx, and has issued an order to freeze their bank balances to the tune of INR 64.67 crores."

The ED stated that this action is part of its money laundering investigation against non-bank financial companies (NBFC) and their fintech partners for "predatory lending practices in violation of the RBI (Reserve Bank of India) guidelines."

According to the announcement, "ED discovered that large amount of funds was diverted by fintech companies to purchase crypto assets and then launder them abroad." These companies and the virtual assets are untraceable at the moment.

Zanmai Labs created a web of agreements with Crowdfire Inc. (USA), Binance (Cayman Islands), and Zettai Pte Ltd. (Singapore) "to obscure the ownership of Wazirx." The authorities further claimed that Wazirx gave "contradictory" and "ambiguous" answers "to evade oversight by Indian regulatory agencies," noting that the exchange failed to provide crypto transactions of suspected fintech companies.

"Because of the non-cooperative stand of the Director of Wazirx exchange, a search operation was conducted," ED said. "It was found that Mr. Sameer Mhatre, Director of Wazirx, has complete remote access to the database of Wazirx, but despite that, he is not providing the details of the transactions relating to the crypto assets purchased from the proceeds of the crime of Instant Loan APP fraud." The law enforcement agency further alleged:

"The lax KYC norms, loose regulatory control of transactions between Wazirx and Binance, non-recording of transactions on blockchains to save costs, and non-recording of the KYC of the opposite wallets have ensured that Wazirx is unable to 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. Therefore, equivalent movable assets to the extent of Rs. 64.67 crores (USD 8.14 million) lying with Wazirx were frozen," the ED announcement concludes.

Binance on the Acquisition of Wazirx

Having seen media reports of his exchange being linked in connection with Wazirx, Binance CEO Changpeng Zhao (CZ) stated on Twitter that his company "does not own any equity in Zanmai Labs."

Zhao has said,

On November 21, 2019, Binance published a blog post that it had ‘acquired’ Wazirx. This transaction never took place. Binance has never, at any point, owned any shares of Zanmai Labs, the entity operating Wazirx.

"Binance only provides wallet services for Wazirx as a tech solution. There is also integration using off-chain to save on network fees." CZ explained that "Wazirx is responsible for all other aspects of the Wazirx exchange, including user sign-up, KYC, trading, and initiating withdrawals."

"Recent allegations about the operation of Wazirx and how the platform is managed by Zanmai Labs are of deep concern to Binance. Binance collaborates with law enforcement agencies all around the world. We would be happy to work with ED in any way possible," the Binance boss said.

CZ’s clarification shocked many in the Indian crypto community since they were under the impression that Wazirx was a Binance company.

Clarification by Wazirx’s Founder, Binance’s Warning

In an attempt to clarify the relationship between Wazirx and Binance, Wazirx Founder Nischal Shetty insisted on Twitter that his exchange was indeed acquired by Binance.

He added that Zanmai Labs, an entity co-owned by him, has been licensed by Binance to operate INR-crypto trading pairs on Wazirx while Binance operates crypto-to-crypto pairs and processes crypto withdrawals.

Asking investors not to confuse Zanmai Labs and Wazirx, he revealed that Binance owns the Wazirx domain name, has root access to its AWS servers, has all the crypto assets, and receives all the crypto profits.

Responding to Shetty’s tweets, CZ confirmed: "We could shut down Wazirx." But we can’t because it hurts users. "He added that Binance does not have operational control, including "user sign-up, KYC, trading, and initiating withdrawals," noting that they are controlled by Wazirx’s founding team. The Binance CEO said: "This was never transferred, despite our requests. The deal was never closed. No share transfers. "

CZ further tweeted:

"If you have funds on Wazirx, you should transfer them to Binance." As simple as that. We could disable Wazirx wallets on a technical level, but we can’t do that. And as many debates, as we are enduring, we can’t hurt users."