Why are regulators worried about crypto firm WazirX’s Chinese link?

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On December 30, 2021, GST officials raided the offices of WazirX and discovered an alleged tax evasion of 40.5 crore. Notably, Binance, the Chinese company that owns WazirX, is also under investigation by the US Department of Justice and the US Internal Revenue Service for money laundering and tax offenses.

WazirX is a curious case for the Indian authorities because it is owned by a company of Chinese origin based in the Cayman Islands, Binance. Since India’s stock, commodity and bond exchanges cannot be fully owned by foreign entities, crypto exchanges, which have so far been unregulated entities, become a haven for investors. and foreign companies. Mainly, due to the lack of regulation in cryptos.

WazirX, the crypto exchange of Zanmai Labs Private Limited, was incorporated on December 21, 2017 under the name of Mumbai Registrar Of Companies (ROC). In November 2019, the company was acquired by Binance, one of the largest crypto exchanges in the world. While such acquisitions have always thrilled the Indian start-up ecosystem, their implications are seen through the prism of the authorities responsible for the country’s fiscal health.

Binance is a company originally from China and later moved its headquarters to Cayman Island, a tax haven. Companies based in these havens are linked with violations of several national and international laws. Binance founder Changpeng Zhao was born in Jiangsu, China, but later moved to Canada.

Notably, China has banned cryptocurrencies completely and plans to issue its own sovereign digital currency, the digital yuan. A cyber yuan should give Beijing the power to track spending in real time, in addition to reducing its dependence on the global dollar-dominated financial system. Ironically, China-grown Binance, which can no longer operate in China, now has its blockchain-related business in more than 180 countries around the world. Including India, via WazirX.

Fortune India contacted WazirX a fortnight ago to find out which stake Binance holds in WazirX. The company chose not to respond to Fortune Indias’ detailed questionnaire, despite repeated reminders.

However, the WazirX white paper, available on its own website, mentions the following:

“WazirX has been acquired by Binance. It will continue to operate as an independent brand of Binance with a focus on P2P.”

He adds, “We launched the world’s first P2P auto-match engine in India when India’s central bank banned banks from dealing with cryptocurrency companies and stock exchanges started closing stores. , WazirX P2P is the preferred method for depositing and withdrawing INR in India, and increasing steadily. We have no intention of stopping with India. Well, bring P2P to more developing and under -developed and provide them with a simple fiduciary ramp solution they deserve. “

Conflict of interest

Although no stock exchange in India, or in the world, is allowed, without careful consideration for conflicts of interest, to have its own shares listed on its own stock exchange, WazirX has issued its own WRX crypto-coin which is listed in stock Exchange.

WazirX claims a user base of over 10 million as of December 2021. All of its Indian users must register by disclosing detailed KYC data to the exchange. This includes bank details, UPI, PAN, citizen identity information (Aadhar, passport or driver’s license). The question is: is this data available for Binance, a Chinese-born company that is already under investigation for financial crimes in the United States.

Asked about the custody of this sensitive user data and whether the data is stored with Binance, WazirX chose not to respond.

Fortune India’s questionnaire also asked WazirX if its P2P exchange is also accessible to foreign entities and if non-Indian entities can sell cryptocurrencies or NFTs through the WazirX platform. WazirX did not answer these questions. The reason Indian crypto exchanges need to be transparent about cryptocurrency sellers or NFTs is because Indian citizens and the government need to be aware of the destination of India’s fiat currency, the Rupee.

Cryptocurrencies come from unknown, non-sovereign sources. Any rupee spent to buy a cryptocurrency from one of the exchanges involves someone selling the coin (s) on the other end. The seller of the coin (s) is hidden due to the very nature of the cryptocurrency. One of the potential pitfalls of buying cryptocurrency, from any source, is that the buyer doesn’t know whether their money is coming out of the country or what activities that money is being used for. The same is true for NFTs.

A platform like WazirX, which facilitates peer-to-peer transactions by converting fiat currency into crypto currency for the buyer, and again, cryptocurrency into fiat currency for the seller, can become a potential drain. for Indian Rupee if Indian citizens are enabled to purchase crypto-coins or NFTs from foreign entities.

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