Binance CEO denies ownership of WazirX amid an investigation by The Directorate of Enforcement

Binance, the world’s largest cryptocurrency exchange based on trading volume, has revealed that it does not own India-based platform WazirX in spite of disclosing the acquisition two and a half years ago, a move that has baffled industry players, including WazirX itself. As mentioned in a series of tweets by Changpeng Zhao, founder and chief executive officer of Binance, the company has been trying to conclude the deal for the last few years, but hasn’t been able to do so as of yet, citing a few issues he declined to elaborate on.

The acquisition of WazirX by Binance was announced in a blog post in late 2019 by Binance. The official blog post, which included a picture of Zhao and the WazirX founders, also contained a quote from the Binance executive who expressed his enthusiasm over the deal. As part of a separate blog post, WazirX announced that it had been “successfully acquired by Binance”.

The acquisition of WazirX shows our commitment and dedication to the Indian people and strengthen the blockchain ecosystem in India as well as another step forward in achieving the freedom of money.

Changpeng Zhao, In 2019 Blog Post

Last year, Zhao tweeted a news item about WazirX, where Binance was described as the owner:

The clarification came as a result of the Enforcement Directorate of India freezing WazirX’s assets worth over $8 million, on the grounds that it had violated foreign exchange rules. According to an order issued by the Indian anti-money laundering agency on Friday, Binance barely responds to queries sent to Binance’s official email address for legal compliance.

In terms of trading volume, WazirX is the largest crypto exchange in India. As of last year, the company reported that its yearly trading volume exceeded $43 billion, a growth rate of 1,735% from the previous year. There are also several other Indian exchanges that use the platform’s technology as well.

According to Nischal Shetty, co-founder of WazirX, Zhao’s claims are false, and Binance has indeed acquired WazirX, in spite of Zhao’s claims. According to a series of tweets he posted on Twitter:

It has been reported that the exchange has ‘actively’ assisted around 16 fintech companies that are under investigation on money laundering charges to divert their alleged proceeds of crime via the cryptocurrency route, as per the agency. Based on the results of the agency’s investigation, it has been found that the exchange has a complex ownership structure which makes it ‘obscure’. A report claimed that the exchange was violating KYC norms and had failed to conduct enhanced due diligence (EDD) or raise suspicious transaction reports (STRs) due to an alleged violation of KYC norms. It is a standard practice for a reporting entity to raise a suspicious transaction report (STR) to the financial intelligence unit (FIU) if it suspects or has reasonable grounds for suspecting that funds are the proceeds of criminal activity, or are related to terrorist financing.

Based on the results of the investigation, most of the transactions on the exchange were not also recorded on the blockchain. Earlier this year, WazirX informed investigators that, prior to July 2020, it was not even recording the details of the bank account from which funds were coming into the exchange for the purpose of buying crypto assets on the exchange. Physical addresses were not verified as part of the registration process. Their clients are not required to provide a source of funding to them and there is no way to check it. In a statement released by the agency, it has been reported that WazirX was being probed under money laundering laws just days after the minister for state (Finance) Pankaj Chaudhary informed Parliament about the probe.

It has been stated by the exchange that the investigators are only looking into charges related to the FEMA and not the PMLA. In June last year, the ED had asked WazirX, to explain a number of transactions involving cryptocurrencies in violation of the rules of the Financial Markets Enforcement Act (FEMA) that were worth Rs 2,790.74 crore.

On August 3, in response to Sameer Mhatre, a director of Zanmai Lab Pvt Ltd (which owns WazirX) not being forthcoming with information being requested, the agency conducted raids against him due to his “non-cooperation” and non-compliant attitude.