Indian Exchange WazirX Receives Notice from Indian Government for Alleged FEMA Violation

Binance-owned Indian crypto exchange, WazirX, has been caught up again in a fresh storm as the Enforcement Directorate (ED), a division of the Indian Ministry of Finance issued a Show-cause notice (SCN) for a violation under the Foreign Exchange Act,1999.

The Enforcement Directorate charged the crypto exchange with financial fraud as it believed the platform supported the illegal transfer of money worth ₹2790.74 crores rupees (~$390 million). As per the initial investigation, illegal betting applications involving Chinese nationals converted the funds from INR to Tether (USDT) on WazirX, which they transferred to their Binance wallets.

The founders of WazirX, Nischal Shetty, Hanuman Mhatre, and two others have been named in the notice. Interestingly, the ED claims that none of these transactions are available on the blockchain for audit, which sounds skeptical as blockchain records all transactions. Also, while answering an RTI (Right to Information), RBI (Reserve Bank of India) said that cryptocurrencies are not legal tender, and thus, they do not come under FEMA Act.

However, without wasting much time, Nischal Shetty took to Twitter to offer more clarity on the whole issue. He said that WazirX is yet to receive the notice, and once they receive it, they would cooperate fully during the investigation. The founder also mentioned that WazirX can trace all its users with official identities. They also comply with the KYC and AML laws.

Was This a Coincidence Or a Pre-Planned Attack?

Historically, India has been very cynical about cryptocurrencies. The government's stance on cryptocurrencies seems to be changing though as cryptocurrencies, especially Bitcoin, gain mainstream adoption and recognition in the country.  Recent media reports have disclosed that the government is no longer looking to ban cryptocurrencies in India.

A recent Indian Express report claims that the Indian Ministry of Finance has held talks with the crypto industry, and now the government will roll out its plans to classify Bitcoin as Asset Class soon. It also discloses that the market regulator, the Securities and Exchange Board of India (SEBI) would be responsible for overseeing the crypto market in India. A bill related to crypto regulations is likely to be tabled in the Parliament in the upcoming monsoon session.

It is very possible that ED's show-cause notice to WazirX could lead to FUD (Fear, Uncertainty, and Doubt) among Indian investors. Crypto investors tend to follow and act on positive and negative news, therefore creating FOMO or FUD does not take much time.  It is well known that the Indian Government and RBI have never been in favor of crypto; the timing of the notice seems peculiar given that India is moving towards the regulation of cryptocurrencies, and begs the question if the notice was timed and issued on purpose to spark fear in Indian crypto investors, or if it is simply a coincidence.

The crypto user base in India has grown dramatically since mid-2020, which has made the present government change its perception of cryptocurrencies. Moreover, the recent historical event of El Salvador accepting Bitcoin as legal tender might have compelled governments worldwide to take a fresh look at cryptocurrencies.

Are Your Funds Safe With WazirX?

WazirX is one of the trusted crypto exchanges in India, and they are also the largest cryptocurrency exchange in India. Recently the platform recorded the highest trading volume worth 270 million dollars, which showcased the growing interest in the Indian space.

WazirX had its share of controversies as well. In a recent event, some WazirX users suffered losses as SHIB token prices increased rapidly on the trading platform. Many WazirX users were angry because of it and held the crypto exchange liable for their losses. WazirX announced an airdrop of WRX tokens to the affected wallets to compensate for their losses. This move by WazirX helped them gain immense trust among the Indian traders, and it proved that the platform aims to keep its users' funds safe.

Overall, India is moving in the right direction. When the Indian government gives the green light to Bitcoin and other cryptocurrencies, it is likely to lead to a new phase for the Indian crypto industry. There might be some challenges along the way but, in the end, India will likely be compelled to regulate the industry, which will hopefully be beneficial for the entire crypto space.