Binance-backed exchange WazirX is cracked down on by Indian authorities

India’s Enforcement Directorate has frozen WazirX’s bank balances with around $8 million worth. WazirX faced scrutiny for its alleged money laundering. Meanwhile, Binance’s CEO said the company never completed the acquisition of WazirX, which it had announced in November 2019.

India’s Enforcement Directorate (ED), a law enforcement agency that investigates financial crimes, has frozen bank balances worth 647 million rupees (or about $8 million) belonging to local crypto exchange WazirX backed by Binance.

According to Friday’s statement, ED conducted searches on WazirX co-founder and CTO Sameer Mhatre as part of its money laundering probe against the exchange. ED has been investigating WazirX since 2021 for its alleged money laundering role linked to Chinese loan apps involved in digital lending in India.

Most Chinese companies were reportedly entering India for lending business by establishing fintech apps since 2019, but as the Reserve Bank of India (RBI) was not giving them a non-banking financial company (NBFC) license, they were making agreements with local NBFCs.

Lately, ED has been investigating several Indian NBFC companies and their fintech partners “for predatory lending practices in violation of the RBI guidelines and by using tele-callers, who misuse personal data and use abusive language to extort high-interest rates from the loan takers,” said in a statement.

According to ED, soon after the start of investigations, many of these fintech apps shut down and diverted away “huge profits” through various ways, including crypto.

“ED found that large amount of funds were diverted by the fintech companies to purchase crypto assets and then launder them abroad,” the announcement said, adding: “These companies and the virtual assets are untraceable at the moment.”

During its investigations, ED also issued summons to crypto exchanges and found out that “maximum amount of funds were diverted to WazirX exchange and the crypto-assets so purchased have been diverted to unknown foreign wallets.”

As per ED, Mhatre has “complete remote access to the database of WazirX, but despite that he is not providing the details of the transactions relating to the crypto assets, purchased from the proceeds of crime of Instant Loan APP fraud,” the agency stated, adding that “the lax KYC [know your customer] norms, loose regulatory control of transactions between WazirX and Binance, non-recording of transactions on blockchains to save costs and non-recording of the KYC of the opposite wallets has ensured that WazirX is not able to give any account for the missing crypto assets.”

In a response, WazirX said in a statement to The Block:

“We have been fully cooperating with the Enforcement Directorate (ED) for several days and have responded to all their queries fully and transparently. We do not agree with the allegations in the ED press release. We are evaluating our further plan of action.”

Later, Binance founder and CEO Changpeng Zhao explained on Twitter, denying owning WazirX:

“Binance does not own any equity in Zanmai Labs, the entity operating WazirX and established by the original founders. On 21 Nov 2019, Binance published a blog post that it had ‘acquired’ WazirX. This transaction was never completed. Binance has never – at any point – owned any shares of Zanmai Labs, the entity operating WazirX.”

Binance only provides wallet services for WazirX, Zhao added. “There is also integration using off-chain tx, to save on network fees. WazirX is responsible all other aspects of the WazirX exchange, including user sign-up, KYC, trading, and initiating withdrawals,” he said.