Nobody wants to admit owning WazirX, and be busted laundering for loan sharks

On 5 August, the WazirX crypto exchange in India had 646.7 million rupees ($8.1 million) of bank balances frozen by the Enforcement Directorate (ED) of the Ministry of Finance. WazirX had allegedly allowed the purchase of crypto assets from the proceeds of crime. [Enforcement Directorate, PDF]

The world thought for three years that WazirX was Binance’s Indian branch. But now everyone involved is denying ownership — because they don’t want to be held responsible for laundering money for loan sharks via crypto.

WazirX tweeted just a few hours before the ED raided them: [Twitter]

BRB, working on something interesting. 1000 retweets & I will drop a hint

I’m pretty sure it wasn’t this, though.

 

 

The loan shark app scam

WazirX was used by crooks to cash out from fraudulent loan-sharking apps based in China. The scam was pretty standard loan-sharking.

A lender would find prospects who were poor and cash-strapped. An app listing would promise them instant cash, limited verification and no paperwork.

The lender would charge a 15–25% “processing fee” at the time of the loan, and then add steep interest on top. Someone might borrow Rs. 50,000, actually be given Rs. 1,000, then have to pay back Rs. 1,500 within 7 days. Some borrowers ended up paying Rs. 300,000 just in interest and fees.

Others ended their own lives. The apps obtained the borrower’s phone contact list and social media details. The lenders would call the borrowers and their friends and families repeatedly,  and send altered photos to their social media contacts. Call centre workers were trained to entrap customers into borrowing successively from multiple apps, then “abuse, defame and blackmail” the victims to get money from them. Some of the call centres were busted in July 2022. [NDTV, 2020; Times of India]

The lenders used NBFC (non-banking financial company) licenses from Indian companies who were on the skids. This allowed them to get paid via the Indian banking system. The money was then used to buy crypto assets at WazirX and other exchanges.

The cryptos would then be sent from WazirX to Binance — whose Know-Your-Customer (KYC) information WazirX had no access to — internally via the Binance trading system, and not traceably on the public blockchain.

The scammers would even use their victims’ personal information to create their accounts on WazirX. [The News Minute, 2021]

The ED is concerned that WazirX could not give them details of the on-exchange transactions of the suspect lenders, nor their KYC. The ED had issued a show-cause notice to WazirX in June 2021 over the scam loans. [Twitter; The News Minute, 2021]

WazirX told the ED that up to July 2020, the exchange didn’t even record the bank account that money was coming in from.

No, it’s your hot potato

The ED also said that Zanmai Labs, WazirX’s owner of record, had obfuscated WazirX’s actual ownership and control. “They are giving contradictory & ambiguous answers to evade oversight by Indian regulatory agencies.”

This is because neither Binance nor Zanmai want to carry the can for the massive money laundering going on via WazirX. If it’s Binance, India could go after them internationally.

ChangPeng Zhao, founder of Binance, posted in 2019 that Binance had bought WazirX. He tweeted recently that that was not the case: [Binance, 2019, archive; Twitter]

On 21 Nov 2019, Binance published a blog post that it had “acquired” WazirX. This transaction was never completed. Binance has never — at any point — owned any shares of Zanmai Labs, the entity operating WazirX.

Binance only provides wallet services for WazirX as a tech solution. There is also integration using off-chain tx, to save on network fees. WazirX is responsible all other aspects of the WazirX exchange, including user sign-up, KYC, trading and initiating withdrawals.

CZ had no problem letting everyone assume for three years that Binance owned WazirX, though.

WazirX founder Nischal Shetty, of Zanmai, tweets a different view of the arrangement: [Twitter]

WazirX was acquired by Binance. Zanmai Labs is an India entity owned by me & my co-founders. Zanmai Labs has license frm Binance to operate INR-Crypto pairs in WazirX. Binance operates crypto to crypto pairs, processes crypto withdrawal…

• Binance owns WazirX domain name
• Binance has root access of AWS servers
• Binance has all the Crypto assets
• Binance has all the Crypto profits

The WazirX terms of service version 1.03, of 1 July 2022, describe both companies as operating the exchange: [WazirX, PDF]

products or services (the “Services”) offered by Zanmai Labs Private Limited (“Zanmai”) and the business known as “Binance” (further described on www.binance.com). Binance and Zanmai operate separate parts of the Services to the extent further described under Sections 5 and 6, respectively, below.

Version 1.02, of 21 May 2020, phrases it like this: [WazirX, PDF, archive]

products or services (the “Services”) offered by Zanmai Labs Private Limited (“Zanmai”) and “Binance” (to the extent further described below) (“WazirX”, “us”, “our”, and “we”).

The WazirX blog states: [WazirX]

WazirX is a platform co-operated by Zanmai Labs Pvt. Ltd. (Zanmai Labs) and Binance.

The two continued to argue publicly over who bought what, when. CZ said: [Twitter]

Fact: we asked for transferring of WazirX system source code, deployment, operations, as recently as Feb this year. This was refused by WazirX. Binance do NOT have control on their systems.

Shetty responded: [Twitter]

Deal involved Binance Parent entity. After some media reports on Binance structure, we asked about it. We were given an ambiguous answer that parent entity is under restructuring. It’s been many months, still waiting for Binance Parent entity. Can Binance name Parent entity?

It’s not clear that Binance has a parent entity — other than CZ personally.

The state of play

CZ told WazirX users on 6 August: [Twitter]

If you have funds on WazirX, you should transfer it to Binance. Simple as that.

Indian crypto users are getting their cryptos off WazirX as fast as possible. Trading volumes have halved. WazirX asks its users to “keep calm” and reiterates that funds are safe. [Business Standard; WazirX]

The off-chain bridge between WazirX and Binance was shut down on 11 August. Binance is apparently “spooked” by the ED investigation. [Binance; CoinTelegraph]

The ED is probing at least ten crypto exchanges, who may have laundered up to 10 billion rupees total for the loan scammers. But most of the money went out via WazirX — and the ED accuses WazirX of actively assisting 16 scam loan app companies. [Times of India]

The Indian government is extremely unhappy with crypto already, and considers the loan app scam to be even more evidence of crypto’s problematic nature. [The Hindu]

Lawyers from Binance and Zanmai are apparently trying to resolve the ownership issue — and precisely who has to answer to the Enforcement Directorate. [New Indian Express]