Illegal FinTech firms in India used crypto exchanges to launder money: Assets frozen

India’s Enforcement Directorate (ED), the country’s law enforcement agency tasked with investigating money laundering and violations of foreign exchange laws, has raided two more cryptocurrency exchanges in the country as part of a larger investigation. The two exchanges, Bitbns and Vauld, have seen their assets frozen.

Bitbns and Vauld bank accounts frozen by ED

In a Medium post on Thursday, Bitbns CEO Gaurav Dahake addressed the delay in Indian Rupee (INR) withdrawals, saying law enforcers have blocked the exchange’s bank account. He lashed out at officers’ approach to block the entire account, saying they do not understand “the seriousness of such a decision.”

“If a cybercrime case is filed for, say, an amount of 10,000 Indian rupees (US$125), the police officer (police officials) can block the entire account. Most police officers do not understand the seriousness of such a decision. Instead of blocking only that the relevant amount for a case, the entire amount is debit blocked.”

The exchange claimed that crypto withdrawals work so that users can “withdraw from any other destination.” Dahake also said that the exchange will add support for USDT P2P (peer to peer) to allow users to withdraw instantly.

Meanwhile, India’s ED has also frozen assets worth 3.70 billion rupees ($46.5 million) of struggling cryptocurrency exchange Vauld, according to local media reports. At the beginning of July, Vauld announced that they are suspending all withdrawals, deposits and trading due to “financial challenges”.

As reported, India’s financial watchdog froze $8.1 million in digital assets belonging to WazirX, a crypto exchange linked to Binance, earlier this month. After the incident, Binance announced that it would stop off-chain transfers with WazirX, while CEO Changpeng Zhao (CZ) claimed that Binance does not own the Indian exchange.

In its official statement, the ED mentioned the dispute between CZ and WazirX co-founder Nischal Shetty, noting that Zanmai Labs, the company that owns WazirX, has concealed ownership of the crypto platform through a “web of agreements” with Crowdfire, Binance (Cayman Islands), and Zettai Pte .

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ED launches probe into 10 crypto exchanges over money laundering

The recent raids on WazirX, Bitbns and Vauld are part of a larger investigation into a group of crypto exchanges that allegedly helped launder the proceeds of crime from accused instant loan apps. According to a report by the Economic Times, the ED is investigating at least 10 crypto exchanges for allegedly helping instant loan apps with ties to China to launder money via crypto.

The embattled instant loan firms turned to crypto exchanges to buy crypto worth over Rs 100 crore (around $13 million), after which they sent the huge amounts to international wallets, ET said, citing people familiar with the matter. The exchanges not only failed to conduct due diligence, but also failed to provide Suspicious Transaction Reports (STRs). Citing a person familiar with the matter, ET said:

“Once these firms learned they were under the scanner, they closed up shop and used the crypto route to retrieve the money overseas. The opaque nature of the crypto ecosystem and the unregulated industry provided the necessary cover for these firms to park their assets offshore. This makes it difficult to investigate the proceeds of crime and trace the ultimate recipient and the nature of the assets created by them.”

How do you think the recent drama will affect India’s booming crypto sector? Let us know in the comments below.

About the author

Ruholamin Haqshanas is an accomplished crypto and financial journalist with over two years of experience writing in the field. He has a solid grasp of various segments of the FinTech space, including the decentralized iteration of financial systems (DeFi), and the emerging market for non-fungible tokens (NFT). He is an active user of digital assets for money transfers.