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India going after WazirX over its role in yet another $130M laundering scandal

When it rains, it pours. And right now, WazirX is drenched. The exchange has been caught up in several scandals this year, especially around the mystery of who exactly owns it. The latest scandal involves the laundering of over $130 million, with India’s authorities accusing it of playing a key role in the India-China criminal ring.

According to an August 11 report by the Indian newspaper Economic Times, the country’s Enforcement Directory (ED) is investigating at least ten digital asset exchanges for allegedly laundering over $130 million. The money is linked to crime rings, including an instant loan app ring with links to China, people with knowledge of the matter told the paper.

While the sources didn’t disclose all the exchanges being probed by ED, they did reveal that WazirX is squarely on the ED’s radar. 

“While so far the agency has frozen the accounts of WazirX, similar transactions have taken place on the other exchanges and they have been asked to join the probe,” a source revealed.

ED froze the accounts of WazirX last week, cutting off access to at least $8 million. The regulator reportedly claims that the exchange “actively” assisted about 16 fintechs, which were under its investigation to launder money.

These fintechs would use their fiat to buy digital assets on WazirX and other exchanges. They then transferred the assets to international wallets, making it almost impossible for Indian authorities to pursue them.

They turned to WazirX as their KYC and AML programs were either super-easy to bypass or, in some cases, they were actively assisted in laundering the money. A source at ED revealed that in some instances, the exchanges would have dubious KYC details for these clients. 

Some of the KYC details “were traced to some persons living in remote areas or a tier-2 or tier-3 town, having no connection with the transactions.”

“The opaque nature of the crypto ecosystem and the industry not being regulated provided the requisite cover for these firms to park their assets offshore. This makes investigating the proceeds of crime and trailing the ultimate beneficiary and the nature of the assets created by them difficult,” the source added. 

In the case of WazirX, this opacity of operations and ownership is making it even harder for authorities to follow up. As CoinGeek reported, the exchange, which everyone wanted to be associated with earlier this year when it was thriving, is now being passed around between its founders and Binance.

Binance CEO Changpeng Zhao denied owning the exchange, saying that (and we’re paraphrasing here) “even though we announced publicly that we bought it, and have been posing as its owners when it grabbed glamorous headlines, we kinda didn’t really buy it.”

In the latest twist, WazirX founder Nischal Shetty claimed in an interview that he has the documents to show he sold the exchange to CZ. However, CZ apparently convinced him to open a local company and run the exchange to adhere to regulations of foreign ownership of VASPs. 

“Both have been approached to answer a basic question as to who is responsible for maintaining the details of the 15 million accounts on the exchange. The two have passed the blame on to the other on questions relating to accountability and non-compliance,” a source at ED said.

What about the very prominent statements on WazirX’s website linking it to Binance, you ask? Binance says that it had no knowledge of the same and that these links were included without its consent. Take responsibility for your own screw-up, a Binance spokesperson told the Indian exchange.

Onto yet another Indian exchange that’s in even more troubled than WazirX, Vauld, the Peter Thiel and Coinbase-backed company which declared bankruptcy and then filed for bankruptcy protection in Singapore, has also been caught in the crosshairs by ED. Local outlets reveal that the agency has frozen over $46 million worth of Vauld’s assets. Sources claim that ED believes Vauld’s wallets contain “proceeds of crime derived from predatory lending practices.”

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups from BitMEX to BinanceBitcoin.comBlockstreamShapeShiftCoinbaseRipple,
EthereumFTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.

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