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Enforcement Directorate (ED) notice to WazirX is eye-opener to Crypto Traders

In this article, we shall discuss why Enforcement Directorate (ED) notice to WazirX is an eye-opener to Crypto Traders. Basically, cryptocurrency traders engaging in Wire transfers and P2P transactions are now getting exposed and vulnerable.

First the background, the enforcement directorate (ED) has issued a show cause notice to India’s biggest cryptocurrency exchange WazirX and its directors for contravention of Foreign Exchange Management Act (FEMA) for transactions involving cryptocurrencies worth Rs2,790.74 crore.

The ED notice has been sent to the company and its directors Nischal Shetty and Sameer Hanuman Mhatre for transactions involving cryptocurrencies worth Rs2,790.74 crore. 

In a statement, the ED says it has initiated an investigation under the FEMA as part of its investigation into the Chinese-owned “illegal” online betting applications. 

“During the course of the investigation, it was seen that the accused Chinese nationals had laundered proceeds of crime worth Rs57 crore approximately by converting the Indian rupee deposits into crypto-currency Tether (USDT) and then transferring the same to Binance (exchange registered in Cayman Islands) wallets based on instructions received from abroad,” the ED said in a statement. 

Transactions are not available on the blockchain for any audit - Problem No.1

ED notice says, “In the period under investigation, users of WazirX via its pool account, have received incoming crypto-currency worth Rs880 crore from Binance accounts and transferred out crypto-currency worth Rs1,400 crore to Binance accounts. None of these transactions are available on the blockchain for any audit or investigation”.

If true and the details of the transactions are not available on Blockchain, then Nischal Shetty and Sameer Hanuman Mhatre has some serious explaination to do. Also this shows the Indian Law authotities are catching up fast with emerging technologies and have become comfortable with tracing transactions available on the blockchain.

WazirX clients could transfer valuable crypto-currencies to any person - Problem No.2

The notice further says WazirX does not collect the requisite documents while violating the basic mandatory anti-money laundering and combating of financing of terrorism precaution norms and FEMA guidelines.

“It was found that the WazirX clients could transfer ‘valuable’ crypto-currencies 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 or other illegitimate activities,” the agency’s statement said.

While this anonymity is the core of Cryptocurrency technology, it has to be seen how WazirX will respond to these queries and whether they approach courts for this matter.

Why it is an eye-opener to all Cryptocurrency Traders?

Many Cryptocurrency Traders engage in Wire transfers to overseas exchanges such as Binance, Bittrex, etc without knowing the details of FEMA regulations and this could put them in crosshairs with RBI, Enforcement Directorate, Income Tax Department, etc.

Also many Cryptocurrency Traders engage in P2P transactions with other entities without knowing their true identity. This could lead them in accepting or transferring valuable crypto-currencies from people involved in illegal activities such as betting, terrorism, human trafficking, child pornography, and many more. In this fashion, you become an indirect accomplice and thereby subject to investigation by RBI, Enforcement Directorate, Income Tax Department, and other agencies.

How can we help?

We are the leading cryptocurrency tax consultant in India and we are helping clients navigate comple compliances under various laws such as FEMA, Income Tax, PMLA (Prevention of Money Laundering Act) and others. As a first step, you should schedule an appointment which would enable us to undertsand your case and advise you and right course of action.