The Indian government that shut down TikTok at the snap of the finger appears undecided on crypto exchanges like Binance, KuCoin, WazirX, Kraken, Huobi, etc. operating within India. Most of these crypto exchanges are either of Chinese origin or are led by persons of Chinese origin. The government took action against TikTok, a video sharing app, for violating privacy norms. At the same time, bank accounts, Aadhar, PAN , and other sensitive financial details of the Indian public are being collected by these apps whose origin is directly or indirectly linked to China and which are now operating from tax havens.
Moreover, many Indian crypto exchanges also have funding from foreign crypto exchanges. WazirX is an example of an Indian-origin crypto-exchange, allegedly acquired by Binance.
BitMex, a crypto-exchange whose founders have recently pleaded guilty of violating U.S. anti-money-laundering laws, is one of the investors of Indian Crypto-exchange, CoinDCX.
Moreover, there are purely foreign crypto exchanges like KuCoin, Binance, Kraken, Huobi etc. operating in India. Indians can buy cryptocurrencies through these exchanges.
These companies can easily flout any laws in India as they are based in remote locations, outside India. In case an offence is committed in India by, or through, a foreign crypto-exchange, they can easily escape liabilities. And even in case of any liability, it will be next to impossible for Indian law enforcement agencies to get hold of them for any investigative or judicial proceedings.
For instance, when a French national lost his crypto-fund to a Chinese fraudster on Huobi platform, the crypto-exchange refused to cooperate with the French police citing that France does not have any jurisdiction over Huobi as they are a company registered in Seychelles. However, the company did not even cooperate with Seychelles law enforcement as Huobi merely exists as a mailing address on the island!
WazirX: A warning sign for India
The Directorate of Enforcement (ED) has recently charged the crypto-exchange WazirX, and other crypto-exchanges, for actively assisting around 16 china-based fintech companies in money laundering. These Chinese loan apps took money from poor and gullible Indians and siphoned off the proceeds using the crypto route.
Nischal Shetty, the co-founder of WazirX made public statements through Twitter that their company Zanmai Labs Pvt. Ltd. had sold WazirX to China originated crypto-exchange, Binance, in 2019, and cannot be held accountable for the current activities of WazirX. Binance CEO, Changpeng Zhao, also made a public statement that Binance does not own WazirX. And this happened despite WazirX being an Indian Unicorn.
As per ED Press release, WazirX’s main office in Mumbai has two-chairs and a desk in a cubicle rented at WeWork, a co-working space. Similarly, Binance’s headquarters is a post-box in the Cayman Islands. As per ED Press Release, Binance personnel can be reached only through an email address that rarely responds to ED’s queries.
The investigation regarding WazirX indicates how enquiries upon foreign crypto-exchanges can be utterly complicated with high chances of futility.
Anarchy is a norm for crypto-exchanges:
The concept of cryptocurrency was birthed to challenge and dismantle the current Central Bank controlled financial model, the key to the existence of national sovereignty. The very ambition of cryptocurrency and their current run-ins with law, across the world, should serve as a warning sign for India.
KuCoin is being investigated for unlawful activities by the South Korean Financial Services Commission (FSC). The Ontario Securities Commission of Canada has also slapped penalties on KuCoin for selling unregistered securities to Canadian citizens.
Binance is another crypto-exchange that is being investigated in the US for money laundering. The company is also embroiled in a similar investigation by the Enforcement Directorate of India.
Roger Ver, an early investor in both Binance and Kraken, is an ex-felon, convicted of selling explosives on eBay, in the US.
11 cases of evasion of GST by cryptocurrency exchanges have been detected by Central GST formations. The exchanges that were involved in alleged GST evasion were Zanmai Labs (WazirX), Coin DCX, CoinSwitch Kuber, Buy Ucoin, UnoCoin, Flitpay. Zeb IT Services (Zebpay), Secure Bitcoin Traders (Coinsecure), Giottus Technologies, Awlencan Innovations India (Zebpay), and Discidium Internet Labs (Koinex), according to the Finance Ministry.
The amount of charges and the seriousness of these offences against the crypto-exchanges should make any country wary of letting them operate without any regulations.
Chinese invasion through crypto route:
It is ironic that although China itself has banned cryptocurrencies and allied crypto businesses, China-origin companies and Chinese-origin founders are running crypto-exchanges in India.
Binance’s Changpeng Zhao is an ex-Chinese national who acquired Canadian citizenship. Binance originated in China and is now based in the tax haven of Cayman Islands.
KuCoin is backed by Matrix Partners, an investment fund based in Beijing, China. Kucoin’s Johnny Lyu was born in Taiwan and educated at China’s Chengdu Neusoft University. His co-founder Michael Gan was the technical expert for Alibaba Group’s Ant. Financial. Before it moved its headquarters to the tax haven of Seychelles, Kucoin was based in Sichuan, China.
The co-founder of Kraken, Thanh Luu is an enigma. There is no public information available about her/him except for an obscure LinkedIn profile whose original information seems to have been deleted.
The co-founder of Huobi crypto-exchange, Jun Du, is of Chinese origin. He is also the co-CEO of Biki Exchange, crypto-exchange, and the CEO of Node Capital, a Venture Capital focusing on the blockchain industry. Another Huobi co-founder Leon Li is a Chinese, based in Hong Kong who refused to visit outside China even for negotiation of his stake dilution with foreign venture funds.
It appears ironic that India is yet to take a call on companies of Chinese origin, based in tax havens, and run by individuals of Chinese origin, who are free to engage in businesses that are allegedly linked to money laundering, fraud, and other crimes.