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Remember the instant loan app harassers? ED thinks crypto exchange WazirX helped them

Amrutha Pagad
Amrutha PagadAug 12, 2022 | 10:06

Remember the instant loan app harassers? ED thinks crypto exchange WazirX helped them

WazirX in trouble for allegedly helping accused loan app companies. Photo: WazirX

In 2020, the Hyderabad Police launched an investigation into illegal instant loan apps. The loan apps were harassing borrowers to the extent that some died by suicide. Loan apps extorted huge interests from the borrowers and at times scammed them as well through blackmail and threats. 

Such instances have not stopped. But investigating agencies have found something that will shock you. The biggest question to be answered in the case of the illegal activities of the largely Chinese-backed loan apps was -

How were they moving money in and out of India? 

Now, the ED has found a probable link. 

Cryptocurrencies. 

The ED is looking into at least 10 crypto exchange platforms over suspicion of money laundering by the instant loan apps through them. More specifically, it is looking at one crypto exchange platform -

WazirX

India's leading crypto exchange platform WazirX is in hot waters with the ED for allegedly helping 16 accused loan app operators, mostly backed by Chinese funds, launder blood money from victims out of India and into unknown foreign accounts. 

The accused instant loan app companies laundered the blood money through purchase and transfer of virtual crypto assets, according to the ED. 

In relation to the case, ED conducted raids on Sameer Mhatre, director at Zanmai Lab, which owns the crypto exchange. Subsequently, they attached Rs 64.67 crore of WazirX and froze their assets. 

Reports also said that the ED has frozen bank accounts of another unnamed crypto exchange platform with cryptocurrencies totalling Rs 370 crore.

The story doesn't end here. 

Following the ED heat on WazirX, an embarrassing spat between its CEO Nischal Shetty and US-based Binance CEO Changpeng Zhao (CZ) broke out on Twitter, of all places. 

Before we tell you what the shocking spat was about, for non-crypto followers, here is what Nischal Shetty and Binance are all about -

Nischal Shetty is known as the crypto guru in India. While Binance is the world's largest crypto exchange platform. In 2019, a blog post by Binance revealed that the firm had acquired WazirX for an undisclosed amount. 

Screenshot of the blog post by Binance.

What was the spat about? This is where things get even murkier. 

Nobody knows who owns WazirX. Not the CEO Nischal Shetty, nor Binance CEO CZ.

After reports of the ED raid made news, CZ stated on Twitter that Binance DOES NOT own WazirX. They said that they only own the India-based platform's IP or technology. 

On the other hand, WazirX CEO Nischal Shetty shot back saying that Binance OWNS WazirX and deals with its operations, trading and transacting practices. 

But Binance says NO, it doesn't have any access to WazirX's data, customer information, transactions or servers. 

Shetty says Binance has ROOT (full) access to WazirX servers and they hold crypto assets. 

What does this mean? It means that both Binance and Nischal Shetty are trying to wash their hands off responsibility of what WazirX did. 

What does the ED say? ED says that WazirX has tried to obscure its ownership by "creating a web of agreements with - Crowdfire Inc. USA, Binance (Cayman Islands), Zettai Pte Ltd Singapore". 

They also said that Nischal Shetty gave contradicting and ambiguous answers regarding the ownership. At first Shetty had told ED that Wazir only has an IP & preferential agreement with Binance. But now Shetty and other owners are claiming that WazirX are involved in "INR-crypto transactions, and all the other transactions are done by Binance". 

Screenshot of ED Press Release.

With regards to the Binance blog post on acquisition, CZ clarified that the acquisition was never completed. 

How did WazirX reportedly help accused loan app companies? The allegation against WazirX is that it failed to do a proper KYC on its customers which enabled the accused loan app companies to get away without scrutiny. 

KYC means Know-Your-Customer and by this WazirX should know each customer's bank account detail and other information. But ED says WazirX may not even have any information on all their customers and their transactions are not even recorded on the blockchain. 

The Binance and WazirX spat, the ED investigation and allegations have robbed crypto investors and customers in India of their trust in the already checkered reputation of the cryptocurrency world. 

Last updated: August 12, 2022 | 10:06
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