The Enforcement Authority of India, or ED, has announced that it has frozen approximately $8.1 million and conducted a search related to the WazirX cryptocurrency exchange as part of an investigation into instant personal loan fraud.

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In Friday’s statement, the Office of Enforcement supposed WazirX facilitated transactions by unnamed fintech companies to “purchase crypto assets and then launder them abroad” in a scheme involving Chinese-backed companies, bypassing India’s licensing rules. In its investigation, ED said it had ordered the freezing of WazirX’s bank accounts containing INR 646.7 million – roughly $8.1 million at press time – and conducted a search linked to co-founder Sameer Mhatre.

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The investigation is still ongoing, the regulator said. However, ED stated that the cryptocurrency exchange has “weak KYC regulations” and “weak regulatory oversight” of transactions between WazirX and Binance and does not record the information needed to verify where the funds are coming from to purchase the cryptocurrency used in the alleged scam.

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“Despite repeated opportunities, WazirX was unable to expose the suspected fintech app companies’ cryptocurrency transactions and disclose wallet KYCs,” ED said, adding:

“WazirX is unable to provide any information regarding the missing crypto assets. He made no effort to track these crypto assets. By encouraging obscurity and enforcing lax AML regulations, he actively assisted some 16 accused fintech companies in laundering the proceeds of crime using the crypto route.”

In Friday’s Twitter thread, Binance CEO Changpeng Zhao said the firm “did not own shares in Zanmai Labs, the company that runs WazirX and was created by the original founders.” He added that “Binance is only providing wallet services to WazirX as a technical solution,” while WazirX is in charge of KYC and other operations on the exchange.

Indian Regulator Investigates Crypto Exchange for Alleged Violations of Forex Law

With many crypto firms leaving China following regulatory action, many companies have reportedly turned to Indian markets. The ED reported that some fintech firms “backed by Chinese funds” have “hooked” on Indian companies with invalid non-bank financial company licenses to offer lending services to residents.

The ED took similar action against WazirX in June 2021, ordering the cryptocurrency exchange to provide a reason related to money laundering investigation transactions in illegal online betting apps involving Chinese citizens. Directed by WazirX Nischal Shetty said at a time when the exchange went “beyond [its] legal obligations by following the Know Your Customer (KYC) and Anti-Money Laundering (AML) processes and always providing information to law enforcement when necessary.”

Cryptooshala reached out to WazirX, but received no response as of press time.