The Indian government took unprecedented action against the biggest crypto exchange in India, WazirX by freezing Rs646,700,000 (US$8.15 million) in bank deposits belonging to Zanmai Lab Pvt Ltd, the operating company behind WazirX. According to India’s Enforcement Directorate (ED), WazirX was the primary weapon of choice for predatory lending companies that reportedly used local crypto exchanges to launder their illicitly acquired funds.
Interestingly, the ED seems to have targeted several non-banking financial companies (NBFC), which allegedly did illegal lending schemes “using tele-callers who misuse personal data and use abusive language to extort high interest rates from the loan takers.”
“A large amount of funds were diverted by the fintech companies to purchase crypto assets and then launder them abroad,” the investigators announced, referring to some fintech companies, operating with Chinese funds. It turns out that the majority of those cryptos were “funneled through WazirX and “diverted to unknown foreign wallets.”
Binance’s role
The name of the largest known crypto exchange to date – Binance, emerged after Zanmai Labs created “a web of agreements” with companies to “obscure the ownership of the crypto exchange,” according to India’s investigators. However, Zanmai neither confirmed nor denied a Binance connection.
It turns out the Indian exchange failed to perform the necessary ‘know your customer (KYC) requirements on exchange transactions and did not record any information about users' bank account detail or their physical addresses before July 2020.
“The lax KYC norms, loose regulatory control of transactions between WazirX & 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.” India’s ED noted.
Meanwhile, after a couple of ED probes, Changpeng ‘CZ’ Zhao now claimed that Binance’s 2019 WazirX acquisition “was never completed”. Interestingly, Zhao’s words are in stark contrast to what Binance and its CEO stated on numerous occasions. For instance, in April 2021 CZ stated that WazirX is “Binance-owned”, echoing Zanmai’s co-founder statements that “Binance has all the Crypto assets” and “Binance has all the Crypto profits.”
Now, Zhao has switched his stance, claiming that Binance “only provides wallet services” for WazirX and that the Indian exchange has to handle KYC and other regulatory problems.
„Binance provides wallet services for WazirX. WazirX domain is transferred to our control. We were given a shared access to an AWS account. We could shut down WazirX. But we can't because it hurts users. Binance does NOT have control over operations including "user sign-up, KYC, trading and initiating withdrawals", as stated earlier. WazirX's founding team controls that. This was never transferred, despite our requests. The deal was never closed.“ Zhao stated.
Is Binance in trouble?
Binance’s fiery tango with regulators is only bringing problems for the largest crypto exchange to date. It has already received a hefty, multi-million fine for violating Dutch financial regulations, and has been urged to stop operating without a license in the Philippines. Furthermore, Binance was accused of violating U.S. economic sanctions against Iran and laundering billions in illicit funds.
However, being the largest crypto exchange to date has its benefits, despite the scrutiny by the SEC, which seems that has all major crypto exchanges in its crosshairs.
But can Binance handle the pressure? According to Zhao, someone (Zanmai’s co-founder) is playing deception wording games. "We can shut down the domain. It just hurts users. We do not have control of the trading system. You just gave the AWS login, no source code, and no deployment capability. You also retained access to the AWS account, source code, deploy, etc." Zhao explained.
“Recent allegations about the operation of WazirX and how the platform is managed by Zanmai Labs are of deep concern to Binance. Binance collaborates with law enforcement agencies all around the world. We would be happy to work with ED in any way possible.” Zhao added.
WazirX community rages
Meanwhile, many Indian users confirmed that the only thing that drove them into investing in WazirX’s native token – WRX, is namely the connection the exchange had with Binance. In the meantime, many WazirX enthusiasts raged about Zhao’s statements, accusing the CEO of Binance.