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 probe. 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 rupees (INR) withdrawals, saying that law enforcement officers have blocked the exchange’s bank account. He lashed out at the officers’ approach to blocking the entire account, saying that they don’t understand “the gravity of such a decision.”

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

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

Meanwhile, India’s ED has also frozen assets worth 3.70 billion rupees (US$46.5 million) at the struggling cryptocurrency exchange Vauld, as per reports by local media. In early July, Vauld announced that it is 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. Following the incident, Binance announced that it would stop off-chain fund transfers with WazirX, while CEO Changpeng Zhao (CZ) claimed Binance doesn’t own the Indian exchange. 

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

Join our Telegram group and never miss a breaking digital asset story.

ED Launches Investigation into 10 Crypto Exchanges Over Money Laundering

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

The charged instant loan firms approached crypto exchanges to buy crypto worth over Rs 100 crore (around $13 million), after which they sent those large amounts to international wallets, the ET said, citing people familiar with the matter. The exchanges not only failed to conduct due diligence but also didn’t raise suspicious transaction reports (STRs). Citing one person familiar with the matter, the ET said:

“Once these firms learned that they were under the scanner, they shut shop and used the crypto route to siphon the funds abroad. The opaque nature of the crypto ecosystem and the industry not being regulated provided the requisite cover for these firms to park their assets offshore. This makes investigating the proceeds of crime and trailing the ultimate beneficiary and the nature of the assets created by them difficult.”

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