The Enforcement Directorate has widened the scope of its investigation into the operation of cryptocurrency exchanges following action against WazirX, where at least six such exchanges have been investigated on suspicion that Chinese nationals have used them as shell companies to fly large amounts of cash out of the country through their gateways.
Of the six high-profile crypto exchanges, it is learned that one each is based in Hong Kong and the Seychelles, and the rest are in India.
The ED conducted searches over three days from August 8 at various premises of Yellow Tune Technologies Private Limited in Bengaluru and issued an order to freeze its bank balances, payment gateway balances and crypto balances of Flipvolt Crypto worth a total of Rs 370 crore in assets. under the Prevention of Money Laundering Act (PMLA).
The current searches and ED action is under PMLA. However, in the case of WazirX, the ED is investigating two cases under the Foreign Exchange Management Act (FEMA), where the original charge alleges that WazirX had allowed the outward transfer of crypto-assets worth Rs 2,790 crore to unknown wallets. Although there is no law to regulate cryptos, legal experts believe there is nothing to prevent government agencies from launching investigations if there is prima facie evidence of violations of exchange controls.
“The absence of any specific legislation should not prevent the authorities from initiating fact-finding proceedings relating to the affairs of crypto-exchanges if there is apparent violation of exchange control laws relating to cross-border transactions and other payments falling within the FEMA regulations,” Aseem said Chawla, Managing Partner, ASC Legal.
ED, meanwhile, has moved on to the stock exchanges.
“It is found that this shell entity was incorporated by the Chinese nationals Alex and Kaidi (real names not known) with the active connivance of willing CAs/CSs and bank accounts were opened in the name of the dummy directors,” ED said. The two Chinese nationals, agency officials said, left India during December 2020. Subsequently, internet banking details, digital signatures of dummy directors etc. were sent abroad and were used by them to launder the proceeds of crime.
After the criminal investigation began, many of these fintech APPs have closed shop and diverted huge profits earned through dubious means, the ED said. “While conducting fund trail investigations, the ED found that large amounts of funds worth Rs 370 crore were deposited by 23 entities, including accused NBFCs and their fintech companies, in the INR wallets of Yellow Tune Technologies , which was held at crypto exchange Flipvolt Technologies.” revealed the agency.
‘Proceeds of crime’
These amounts charged to the ED were nothing but “proceeds of crime” derived from lending practices. The cryptocurrency thus purchased was transferred to various unknown foreign wallet addresses. The executives said that during the searches of various premises of Yellow Tune, they could not find the real owners of the company and the wallets of the beneficiaries. And the promoters of the company are still untraceable, but the ED said it could link the assets of the company to the extent of 2.31 crore under PMLA.
“Yellow Tune using the assistance of Flipvolt Crypto exchange which has very lax KYC norms, no EDD mechanism, no control of depositor’s source of funds, no mechanism to raise STRs etc helped the accused fintech companies to avoiding regular banking channels, and easily managed to withdraw all the fraud money in the form of crypto-assets,” the ED emphasized in the official statement.
Flipvolt failed to provide the complete trail of crypto transactions made by Yellow Tune, despite providing repeated opportunities, agency officials pointed out. It also failed to provide any kind of KYC of the opposite party wallets, which is why the ED cited for initiating money laundering proceedings against them.
Of the seized assets worth DKK 370 million. INR, stood at 367.67 million. INR at Flipvolt Crypto exchange and payment gateway balances worth 164.4 million. INR and crypto assets lying in their pool accounts to the value of 203.26 million. fund track is given to ED.
12 August 2022