Under the Foreign Exchange Management Act, 1999 (FEMA), the Enforcement Directorate (ED) issued a showcause notice to cryptocurrency exchange WazirX (M/s Zanmai Labs Pvt Ltd) and its directors Nischal Shetty and Sameer Hanuman Mhatre on Friday for transactions involving cryptocurrencies worth Rs 2,790.74 crore. According to the ED, the FEMA probe was launched in response to the current money-laundering inquiry into Chinese-owned unlawful online betting applications.
With respect to the statement, “it was observed during the course of the investigation that the alleged Chinese nationals siphoned approximately Rs 57 crore in criminal proceeds by transferring INR deposits into Crypto-currency Tether (USDT) and then converting the same to Binance (exchange registered in the Cayman Islands) Wallets based on instructions received from abroad.”
WazirX is a cryptocurrency exchange based in India that allows consumers to trade digital currencies such as Bitcoin, Ethereum, and Ripple. WazirX supports a wide range of cryptocurrency (CC) transactions, including the exchange of CCs for rupees and vice versa, CC exchanges, P2P transactions, and even the transfer/receipt of cryptocurrency held in its pool accounts to wallets of other exchanges, which may be held by foreigners in locations outside India.
The ED claimed in a statement that WazirX “clearly violates the basic obligatory Anti Money Laundering (AML) and Combating of Financing of Terrorism (CFT) cautious regulations and FEMA recommendations” by failing to acquire the required paperwork.
Users of WazirX’s pool account received incoming cryptocurrency worth Rs 880 crore from Binance accounts and moved out bitcoin worth Rs 1,400 crore to Binance accounts during the inquiry period. “For any audit/investigation, none of these transactions are viewable on the blockchain. WazirX clients were discovered to be able to send ‘valuable’ cryptocurrency to anyone, regardless of their location or nationality, without any kind of paperwork, making it a safe refuge for individuals wishing to launder money or engage in other illegal activities,” according to the statement.
The story of Cryptocurrency in India
Recent events in the crypto world, such as Bitcoin’s freefall from $65,000 in April to below the $40,000 level following Elon Musk’s words, have refocused attention on regulations governing cryptocurrency governance in India. Around 7 million Indians have already invested over $1 billion in cryptocurrencies, and the government faces a difficult problem in allowing the fintech sector to thrive in India while ensuring that it is done safely. Let’s look at how the government views cryptocurrencies and their legal status in the country.
After dithering over whether to legalise or prohibit cryptocurrencies, the Indian government has made a positive step toward regulating digital currencies in the country. Companies must now declare their crypto trading/investments during the financial year, according to the Ministry of Corporate Affairs (MCA). Experts see it as a positive step forward and anticipate that the taxation rules will be followed. This is seen as the first step in India’s efforts to regulate cryptocurrencies.
Crypto asset accounting aims to prevent criminal activity and the circulation of black money using cryptos. More public disclosures can also help to strengthen company governance. The Centre has informed crypto enthusiasts that there would be no blanket ban on digital currencies and that it is still forming its final opinion on the subject. Nirmala Sitharaman, the Finance Minister, stated that the Centre is open to experimenting with new technologies and has not closed its mind to them.
In India, cryptocurrencies are not outlawed. So, if you wish to acquire Bitcoins, for example, you can do so and begin trading in them. India, on the other hand, currently lacks a regulatory framework to manage cryptocurrencies. On November 2, 2017, the government formed an Inter-Ministerial Committee (IMC) to explore virtual currencies. The Group’s report, which was accompanied by a draft proposal, highlighted the benefits of distributed-ledger technology and identified a number of applications, particularly in financial services, for its usage in India, including banks and other financial institutions.
The Centre, on the other hand, had expressed concerns about its misuse and intended to impose a blanket ban in India. According to early reports, Bitcoin may not be completely banned in India. A panel to govern them could be established by the Centre soon. After multiple cryptocurrency exchanges asked the Centre to regulate rather than outlaw virtual coins, the decision was made. Are cryptocurrencies taxable? In circumstances where the user obtaining the gains is an Indian tax resident or the crypto is said to be domiciled in India, cryptocurrency transactions are taxable in India.
The Reserve Bank of India (RBI) issued a circular in April 2018 advising all organizations under its jurisdiction not to trade in virtual currencies or provide services to assist anyone in dealing with or settling them. “The government does not consider cryptocurrencies as legal tender or coin,” the finance ministry said in a statement in 2018, “and will take all measures to eliminate the use of these crypto-assets in financing illegitimate activities or as a part of the payment system.” “The government will explore the use of blockchain technology proactively for assuring in the digital economy.”
A special committee proposed prohibiting all private cryptocurrencies in mid-2019, with a 10-year imprisonment and severe punishments to anybody dealing in cryptocurrency. The Supreme Court reversed the RBI’s notice in March 2020, allowing banks to execute cryptocurrency transactions from dealers and exchanges.
Despite its worries about cryptocurrencies, the government is developing its own digital money. The government does not want to be left behind in the new age of technology, therefore it plans to take use of the advantages that blockchain technology provides. “The time has come to exploit its uses while also enhancing the digital infrastructure,” RBI Governor Shaktikanta Das said in February when revealing that the central bank is focusing on a digital currency.