Trouble Deepens for Crypto Players as Top Execs Summonsed



India’s Directorate of Enforcement (ED) has summonsed top crypto bosses to further probe if the platforms are in violation of foreign exchange rules, a report has confirmed.

An official told the Economic Times: “Information has been sought from the exchanges and in certain cases their executives have also joined the probe. The documents are being examined and if need be, they could be called again.”

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Report reveals exchange chiefs appeared before ED

The report states that the crypto exchanges operating in India will have to provide information under the Foreign Exchange Management Act (FEMA), a legislation that empowers the government and the central bank to investigate financial transactions received from or made abroad.

As part of an ongoing probe, sources said that CoinDCX chief Sumit Gupta appeared before the government agency earlier this month, with executives from CoinSwitch Kuber also summonsed.

The two crypto unicorns recently suspended withdrawals, citing larger market volatility and KYC requirements.

Binance-owned Indian exchange WazirX was reportedly probed on the same grounds in June 2021, being made to explain transactions of over $351 million (27.9 billion INR). The same exchange was also later pulled up for alleged evasion of over $5 million (400 million INR) in goods and services tax (GST) and was asked to pay around $6 million (492 million INR) as tax and penalty.

The official also added: “Transaction history, relationship with foreign exchanges, how much money is going out of India – ED is examining every detail on offshore transactions.”

Money laundering concerns trouble industry

The probe came about due to concerns over money laundering and terrorist financing. “Recently, in one of the cases, we found instances of use of hawala [an informal method of transferring money without any physical money actually moving] and crypto in TBML [trade-based money laundering]. This e-hawala route using crypto offers an opaque structure, making it almost difficult to find both the source and the beneficiary,” the official said.

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CoinDCX has told the Economic Times that it would comply with the rules and cooperate with regulators. CoinSwitch has also stated that its approach is “transparency” to government queries.

Be[In]Crypto spoke to Advocate Rajat Mittal, tax counselor with the Supreme Court of India, to understand what could be next for these players. He explained, “At this point, ED has only summoned the top exchanges for participating in inquiry pertaining to Money Laundering and Terror funding, if any,” he explained.

“ED is well within its right to investigate. Legal recourse would be available to these companies if ED issues any notice of violation of FEMA norms or Anti Money Laundering laws. Like in the case of WazirX,” Mittal added.

The report comes soon after the new taxation guidelines had taken a hit on the domestic trading volumes. Mittal also said that, so far, no player has come forward to challenge the new guidelines in the court. 

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