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WazirX Says It Has KYC Details, Is Cooperating With ED in Money Laundering Probe

Money was laundered by taking advantage of the anonymity offered by off-chain transactions with Binance, ED said.

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Edited By :Ahamad Fuwad

Indian cryptocurrency exchange WazirX said that it is able to produce KYC details for all off-chain transactions and is cooperating with the Enforcement Directorate in a money laundering probe.

"We have fully cooperated with the Enforcement Directorate (ED) for several days and have responded to all their queries fully and transparently," WazirX said in a statement on Tuesday, 9 August.

"ED appears to be investigating the transactions of certain users and Zanmai Labs (which owns WazirX) has no affiliation to such users and is unaware about the purpose of their transactions," it added.

This comes after the Enforcement Directorate alleged that money was being laundered by taking advantage of lax KYC norms and that Sameer Mhatre, Director WazirX, was unwilling to provide transaction details.

ED, on 3 August, conducted raids against Mhatre and subsequently ordered a freeze on the exchange's bank assets worth Rs 64.67 crore.

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Binance Disables Off-Chain Transfers

WazirX, in its statement, also said that it is a platform co-operated by Zanmai Labs Pvt Ltd (Zanmai Labs) and Binance, a global cryptocurrency exchange based in the Cayman Islands.

Binance, which claims that it has never owned any stake in Zanmai Labs, said on Monday, 8 August, that it is disabling the off-chain fund transfer channel with WazirX.

"In order to provide clarity and protection for users, we are removing the off-chain fund transfer channel between WazirX and Binance. Effective from 11 August 8:30 am IST, Binance will cease to support off-chain fund transfers between WazirX Exchange and Binance," the exchange said.

Binance also insisted that it doesn't manage funds deposited in WazirX.

"As a result of the recent regulatory action taken against Zanmai Labs Pvt Ltd, in relation to their operations of the WazirX Exchange, it has come to our attention that some users were given to believe that funds deposited in WazirX were managed by Binance. This is not the case," it said.

What Are Off-Chain Transactions?

Off-chain transactions, simply put, are crypto transactions which aren't recorded on the blockchain, which is a shared ledger that maintains a secure and decentralized record of transactions.

They are popular because they are cheaper and faster. Since they aren't visible on the public ledger, they offer even more anonymity to the participants.

Now that Binance is disabling off-chain fund transfers with WazirX, customers will have to deposit and withdraw balances via the standard procedure which involves the blockchain.

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ED’s Allegations Against WazirX

ED alleges that WazirX assisted instant loan app companies in money laundering via purchase and transfer of virtual crypto assets.

"It was found that Sameer Mhatre, Director WazirX, 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 ED alleged in a statement.

The money was laundered by taking advantage of the anonymity offered by off-chain transactions with Binance and lax KYC norms, the investigative agency said.

"The lax KYC 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," it added.

WazirX now says that the KYC details are available for all off-chain transfers as well and have been submitted to the ED when requested.

The ED also said WazirX made no efforts to trace these crypto assets.

"By encouraging obscurity and having lax AML (anti-money laundering) norms, it has actively assisted around 16 accused fintech companies in laundering the proceeds of crime using the crypto route," it said.

The Question of Ownership

In a blog post in November 2019, Binance had said that it had acquired WazirX.

However, shortly after ED's statement, Binance's Founder and CEO Changpeng Zhao said the company does not own any stake in Zanmai Labs, since the deal was never closed.

WazirX founder Nischal Shetty, however, insisted that WazirX is “still owned by Binance" and that "Zanmai Labs has license from Binance to operate INR-Crypto pairs in WazirX."

In response, Zhao said that while Binance has the power to shut down WazirX, it does not have control on its operations including "user sign-up, KYC, trading and initiating withdrawals".

He added that shutting WazirX down isn't an option because "it would hurt users" but urged WazirX users to transfer funds to Binance.

The ED suggested on Friday that Binance was difficult to contact, however the company has said that it will support Indian regulators in the ongoing matters concerning WazirX.

"Binance believes in keeping an open dialogue with regulators, policymakers and the law enforcement community as we collectively seek to establish a global regulatory framework for the industry," it added.

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