The ED probe into alleged money laundering by crypto exchange WazirX and the subsequent squabbling among its promoters has revealed the ‘darker side’ of cryptocurrencies, a top government source said on Thursday.
The source added that people should exercise caution in absence of a regulation to govern cryptocurrencies and so-called exchanges trading in them. “Caution is the word that should be in the minds of the people dealing with crypto. In the episode of WazirX, people got to know many darker sides, caution is necessary in crypto transaction,” the source said.
The Enforcement Directorate (ED) has been investigating allegations of money laundering against WazirX. The agency has frozen Rs 64.67 crore worth bank deposits as part of an ongoing money laundering probe against some fraud smartphone-based loan apps “backed” by Chinese funds. Within days of the ED action, a public spat broke out between global cryptocurrency platform Binance CEO Changpeng Zhao and WazirX co-founder Nischal Shetty.
Binance CEO distanced himself from the operations at WazirX exchange, while the Indian entity said it was exploring legal action against Binance. Minister of State for Finance Pankaj Chaudhary had said in Parliament that a show-cause notice has been issued under the provisions of the Foreign Exchange Management Act (FEMA) against WazirX for allowing outward remittance of crypto assets worth Rs 2,790 crore to unknown wallets.
Further, in another case, it was noticed that WazirX allowed the foreign users’ request to convert one crypto into another on its own platform as well as by using transfers from third-party exchanges, namely FTX, Binance, etc, he said. Government sources said the WazirX episode has brought to fore a lot of issues and the ED is investigating the case. India does not recognise cryptocurrencies, but levies a 30 per cent tax on income earned from such virtual digital assets.
Finance Minister Nirmala Sitharaman has been making a strong case for global regulation of cryptocurrencies to tackle the risks of money laundering and terror funding. At the G20 Ministerial Symposium on Tax and Development in Bali, she had suggested that G20 should examine the feasibility of bringing non-financial assets like crypto into the ambit of automatic exchange of information among nations to check tax evasion.