WazirX, one of India’s major digital currency exchanges, is under investigation from the Enforcement Directorate (ED) for possible breaches of the country’s foreign exchange legislation.
The agency in charge of enforcing economic rules and combating financial crime investigates WazirX for allegedly allowing users to deal in digital currencies without necessary documents.
The regulator is concerned that WazirX is not doing enough to curb criminals’ potential misuse of digital currencies. At the same time, a dozen other worldwide agencies are probing its owner Binance for ongoing legal breaches.
WazirX under scrutiny
The Indian watchdog allegedly requested WazirX in its recent notice to explain why “withdrawal from crypto wallets is not a violation of the Foreign Exchange Management Act (FEMA),” a source with knowledge of the situation told Indian business news outlet Economic Times.
In addition to ordering WazirX to explain digital currency transactions worth INR2,790 crore ($258.3 million) that it believes may have breached the country’s financial rules.
An official for the ED stated:
“These were carried out in violation of forex rules. WazirX’s platform allowed clients to transfer cryptocurrencies without proper documentation, making it a route for laundering.”
WazirX, like every other exchange in India or the world, allows customers to withdraw digital currency to other exchanges and wallets. The regulator is concerned about the transfer of funds using WazirX since it crosses borders.
While authorities know where the digital currency is going, they don’t always know who owns the wallet, which creates a vulnerability in the system that criminals can capitalize on.
An official at the regulator confirmed:
“The exchange has claimed they have done KYC, but that isn’t enough to ensure that the digital currency isn’t misused. In the absence of any official digital currency and regulation, there have been instances of Bitcoins being used to buy drugs on the darknet as well as for money laundering.”
Nischal Shetty, CEO and Founder of WazirX declined to comment on the regulatory proceedings.
Binance expands compliance team
Since June 2020, the Federal Trade Commission in the United States has received 760 consumer complaints about cryptocurrency exchange Binance. Thus, in response to growing regulatory scrutiny, Binance is drastically expanding its international compliance team.
CEO Changpeng Zhao stated in a blog post on July 15 that the business plans to double its compliance team by the end of the year, without specifying the figure.
Despite heightened regulatory scrutiny, card payment service providers Visa (NYSE: V) and Mastercard (NYSE: MA) continue to cooperate with Binance. Also, recognized crypto exchanges continue to pour money into India despite regulatory uncertainty viewing the country as an important growing market.