In the wake of the controversy around the owners disowning India's largest crypto exchange WazirX in the wake of alleged money laundering on the platform, the company has issued a statement saying WazirX is a platform co-operated by Zanmai Labs Pvt. Ltd. and Binance, and that the company has a no-tolerance policy towards any illegal activities using its platform. Notably, WazirX co-founder Nischal Shetty had earlier claimed that WazirX is wholly owned by Binance.
The controversy has also caused a huge dip in trading volumes on the platform; around 54% in five days, shows data by a secondary research firm.
The crypto exchange is being investigated by the Directorate of Enforcement for alleged money laundering. In its recent probe, the ED found that the company was involved in alleged money laundering and facilitating illegal entities to send money out of India, via the purchase and transfer of virtual crypto assets.
However, WazirX has said it is unaware of the purpose of such transactions on its platform, and that the platform, like any other platform, could have been "misused".
"ED appears to be investigating the transactions of certain users and Zanmai Labs has no affiliation with such users and is unaware of the purpose of their transactions. Zanmai Labs is in the position of any other intermediary whose platform may have been misused," says the company.
WazirX says as per the applicable law, all its users agree to the agreement and can sign up only after the KYC process is completed, including submitting proof of address and identity. "Our KYC/AML terms and processes are available on the platform publicly. For every transaction, we are able to produce the KYC details of the relevant user. We do not accept any cash transactions," says the company, adding that it has fully cooperated with the Enforcement Directorate (ED) probe and responded to all queries fully and transparently.
Before the WazirX's clarification, the ED had alleged that many Chinese apps shut shops in India due to predatory lending practices in violation of RBI guidelines and diverted funds out of the country. While conducting a fund trail probe, the premier probe agency found a large number of funds were diverted by the fintech companies to purchase crypto assets and then launder them abroad. ED notes the maximum amount of funds were diverted to the WazirX exchange and the crypto-assets so purchased have been then diverted to unknown foreign wallets.
On the issue of off-chain transactions between WazirX and Binance, the company has called a "major misunderstanding". "Off-chain transactions between WazirX and Binance can only be done by a user between his/her/its own account on the two platforms. Hence, KYC details are available for all off-chain transfers as well [and have been submitted to the ED when requested]," it clarifies.
As per the crypto platform, off-chain withdrawals also can't happen if the accounts are not KYCed. "Law enforcement agencies (LEAs) can get complete information about the accounts involved in off-chain transfers," it adds.
The ED, on the other hand, has accused WazirX of lax KYC norms, loose regulatory control of transactions between WazirX and Binance, and non-recording of transactions on the blockchain to save costs and non-recording of the KYC of the opposite wallets. It said that by doing so crypto platform actively assisted around 16 accused fintech companies in laundering the proceeds using the crypto route, says ED.
The probe agency has, meanwhile, conducted searches on one of the directors of Zanmai and issued an order to freeze bank balances to the tune of ₹64.67 crore.
Apart from the ED probe, the company is also facing the battle of ownership. On August 8, Changpeng Zhao, the chief executive of the world’s largest crypto exchange by volume Binance, said his company does not own any equity in Zanmai Labs. This came two and a half years after Binance announced the “acquisition” of crypto trading platform WazirX in a blog post in November 2019. But Zhao now claims that the deal was never closed. “Binance has never - at any point - owned any shares of Zanmai Labs, the entity operating WazirX,” he said.