A major Indian cryptocurrency exchange, Wazirx, has had its
bank assets of more than $8 million frozen by the Directorate of
Enforcement (ED). The exchange was supposedly acquired by Binance in
2019. However, Binance CEO Changpeng Zhao (CZ) now claims that the
acquisition was “never completed.” Wazirx, however, maintains that it
was acquired by Binance.
ED’s Action Against Wazirx
India’s Directorate of Enforcement (ED) issued
a press release Friday concerning Wazirx, a major crypto exchange in
India. ED is a law enforcement and economic intelligence agency of the
government of India. The announcement details:
Directorate of Enforcement (ED) has conducted searches on
one of the directors of M/s Zanmai Lab Pvt Ltd, which owns the popular
cryptocurrency exchange Wazirx and has issued a freezing order to freeze
their bank balances to the tune of INR 64.67 crore.
ED stated that this action is part of its money laundering
investigation against non-bank financial companies (NBFC) and their
fintech partners for “predatory lending practices in violation of the
RBI [Reserve Bank of India] guidelines.”
The announcement describes: “ED found that large amount of funds were
diverted by the fintech companies to purchase crypto assets and then
launder them abroad. These companies and the virtual assets are
untraceable at the moment.”
ED alleged that Zanmai Labs created a web of agreements with
Crowdfire Inc. (USA), Binance (Cayman Island), and Zettai Pte Ltd.
(Singapore) “to obscure the ownership of Wazirx.” The authority further
claimed that Wazirx gave “contradictory” and “ambiguous” answers “to
evade oversight by Indian regulatory agencies,” noting that the exchange
failed to provide crypto transactions of suspected fintech companies.
“Because of the non-cooperative stand of the director of Wazirx
exchange, a search operation was conducted,” ED stressed. “It was found
that Mr. Sameer Mhatre, director of 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 law
enforcement agency further alleged:
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. It has made no efforts to trace these
crypto assets.
“By encouraging obscurity and having lax AML norms, it has actively
assisted around 16 accused fintech companies in laundering the proceeds
of crime using the crypto route. Therefore, equivalent movable assets to
the extent of Rs. 64.67 crore [$8.14 million] lying with Wazirx were
frozen,” the ED announcement concludes.
Binance’s Statements on Acquisition of Wazirx
Having seen media reports of his exchange being mentioned in connection with Wazirx, Binance CEO Changpeng Zhao (CZ) stated on Twitter that his company “does not own any equity in Zanmai Labs.”
Zhao claimed:
On 21 Nov 2019, Binance published a blog post that it had
‘acquired’ Wazirx. This transaction was never completed. Binance has
never — at any point — owned any shares of Zanmai Labs, the entity
operating Wazirx.
“Binance only provides wallet services for Wazirx as a tech solution.
There is also integration using off-chain tx, to save on network fees.
Wazirx is responsible all other aspects of the Wazirx exchange,
including user sign-up, KYC, trading, and initiating withdrawals,” CZ
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,” the Binance
boss emphasized.
CZ’s clarification shocked many in the Indian crypto community since
they were under the impression that Wazirx is a Binance company.
Clarification by Wazirx’s Founder, Binance’s Warning
In an attempt to clarify the relationship between Wazirx and Binance, Wazirx founder Nischal Shetty insisted on Twitter that his exchange was indeed acquired by Binance.
He added that Zanmai Labs, an entity co-owned by him, has licensed
from Binance to operate INR-crypto trading pairs on Wazirx while Binance
operates crypto-to-crypto pairs and processes crypto withdrawals.
Asking investors not to confuse Zanmai Labs and Wazirx, he revealed
that Binance owns the Wazirx domain name, has root access to its AWS
servers, has all the crypto assets, and receives all the crypto profits.
Responding to Shetty’s tweets, CZ confirmed:
“We could shut down Wazirx. But we can’t because it hurts users.” He
added that Binance does not have operational control, including “user
sign-up, KYC, trading and initiating withdrawals,” noting that they are
controlled by Wazirx’s founding team. The Binance CEO stressed: “This
was never transferred, despite our requests. The deal was never closed.
No share transfers.”
CZ further tweeted:
If you have funds on Wazirx, you should transfer it to
Binance. Simple as that. We could disable Wazirx wallets on a tech
level, but we can’t/won’t do that. And as much debates as we are
enduring, we can’t/won’t hurt users.
