ED searches Coinswitch Kuber’s five locations under money laundering probe

This is the third exchange under the scanner of the federal agency for allegedly diverting proceeds of crime raised by 365
instant loan apps by offering loans at exorbitant rates of interest and then using tele-callers to recover them.

The crypto trading platform, which is backed by Silicon Valley-based Andreessen Horowitz and Sequoia Capital India, has over 18 million registered users. According to its website, over Rs 1 lakh crore of crypto has been traded on its platform.

The company did not confirm or deny ED searches. “We receive queries from various government agencies. Our approach has always been that of transparency. Crypto is an early stage industry with a lot of potential and we continuously engage with all stakeholders,” a company spokesperson said in a statement.

ET reported on August 11 that
ED is probing at least ten cryptocurrency exchanges for allegedly laundering more than Rs 1,000 crore identified as proceeds of crime of the accused firms under investigation in the instant loan app case, most of them having a China link.

Similar action is expected against other exchanges as part of the investigation.

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“We receive queries from various government agencies. Our approach has always been that of transparency. Crypto is an early-stage industry with a lot of potentials and we continuously engage with all stakeholders,” said a company spokesperson in a statement.

ED’s actions add to mounting woes for crypto platforms that have seen their volumes drop after the new tax regime was introduced and the Internet and Mobile Association of India (IAMAI) dismantled the Blockchain and Crypto Assets Council (BACC) last month amid the growing conflict between the central bank and crypto exchanges over the virtual currency’s legal status in India.

Earlier this month, the
ED had seized assets totalling Rs 370 crores including the crypto balances in the Flipvolt cryptocurrency exchange. Crypto lender Vauld serviced Indian residents through its domestic entity Flipvolt Technologies. Previous to that, the ED had also conducted searches on one of the directors of Zanmai Labs, which owns the popular crypto exchange WazirX, and issued an order to freeze bank balances totalling Rs 64.67 crore.

According to sources, the ED is looking into questionable peer-to-peer (P2P) transactions, inflated liquidity shown in key documents and lax know-your-customer (KYC) protocols of these exchanges, sources added.

“The probe has found their (KYC) to be either bogus or dubious in more than 80% of the cases,” said the person cited above. “The agency has found them to be in violation of section 11 (A) of the PMLA Act, which requires every reporting entity to verify the identity of its clients and the beneficial owner.”

In the case of Vauld, a shell entity called Yellow Tune Technologies Pvt. Ltd was used to launder the proceeds of crime using its wallets, the person said. “This company (Yellow Tune) has Chinese nationals as its directors who left the country in December 2020, and the promoters are on the run,” the officer said.

In almost all the cases that have Chinese links, ED investigators have found the same modus operandi: local entities are incorporated by chartered accountants by filing fabricated documents and registering them when the company is actually not in existence. These firms are later transferred to the Chinese partners.