Indian crypto exchange, WazirX, gets show cause notice from ED for violation of FEMA
I would like to highlight your attention to my earlier post about the change in India's central bank's stance on cryptocurrency dealings - India's central bank's clarification on crypto dealings: The devil is in the details. The specific part that I want to focus on from the article is this -
The most important regulation mentioned above is FEMA.
Can crypto exchanges or banks ensure that bitcoin purchased in India has not been shifted to exchange overseas to buy a cryptocurrency that is not available to trade in India? Have there been transactions where Bitcoin has been used to remit money overseas?
I had mentioned in my article that the RBI, through its notification, has made matters worse for Indian cryptocurrency buyers because it has now asked banks to ensure that all transactions done by them should ensure adherence to various regulations -
- Know Your Customer (KYC)
- Anti-Money Laundering (AML)
- Combating of Financing of Terrorism (CFT)
- Prevention of Money Laundering Act, (PMLA), 2002
- Foreign Exchange Management Act (FEMA)
FEMA was the most important regulation mentioned in the above list because unknowingly, almost everyone will end up violating it. The latest news to come out yesterday proves that -
ED show-cause notice to cryptocurrency exchange WazirX for Rs 2,790-crore violations under FEMA
ED or Directorate of Enforcement is a specialized financial investigation agency under the Department of Revenue, Ministry of Finance, Government of India, which enforces the following laws - FEMA and PMLA. Source
Apparently, the investigation agency found some transactions in which Indian crypto buyers have been gambling with crypto online. This means that a number of crypto transactions are being monitored in India.
In the period under investigation, users of WazirX via its pool account, have received incoming cryptocurrency worth Rs 880 crore from Binance accounts and transferred out cryptocurrency worth Rs 1,400 crore to Binance accounts
Source
I was wrong to say that there was no way for exchanges or banks to monitor foreign remittances. I missed the aspect that the transfer of cryptocurrency between exchanges always happens. Exchanges can easily monitor that. Even the ED is monitoring such transactions. WazirX's pooled account has transferred $200 million worth of cryptocurrency outside of India. No reporting means FEMA violation.
When a person remits large sums of money abroad, regulations require him or her to state the purpose of such transfers. Of course, WazirX has not thought about this. Have banks ensured that WazirX, its customer, is not transferring money overseas via cryptocurrency? No, they haven't. No entity wants to screw up with Indian enforcement and regulatory bodies. WazirX has denied receiving a notice. They also claim they do more than what is required to ensure adherence to all laws. I can fully state that they do not.
Cryptocurrency due to its inherent feature of self custody makes adherence to all the above regulations extremely difficult. Any transfer of USDT to exchange overseas is a crime if not reported.
I strongly urge crypto investors in India to not transfer currency overseas to purchase any alt that may not be listed on the Indian exchange. Thankfully HIVE is listed in India and therefore buying HIVE and powering up is not a problem. However, be very careful about where your crypto is transferred. In case you end up with a lot of money, you will have enforcement agency officers following you. The case of WazirX is an example.