When WazirX landed in controversy over money laundering & drug trading charges

New Delhi: WazirX, India’s largest cryptocurrency exchange, has been accused of tax evasion to the tune of Rs 40.5 crore. The Good and Service Tax (GST) department on Friday recovered about Rs 49.2 crore from the company, including the GST owed plus interest and penalties.

According to the indirect tax department, the company issued its own cryptocurrencies, WRX coins through Zanmai Labs however, did not pay GST on it.  The tax department slapped penalty on the crypto exchange for not paying 18% applicable GST on those coins.

Officers of CGST Mumbai East comm’te have detected GST Evasion of Rs 40.5 Cr. on commission of Wazir X Crypto Currency & recovered Rs 49.2 Cr. in cash as GST, interest & Penalty today on 30.12.2021 from Zanmai Labs Pvt. Ltd. @nsitharamanoffc @mppchaudhary @cbic_india @PIBMumbai

— CGST Mumbai Zone (@cgstmumbaizone) December 30, 2021

According to probe team, the WazirX crypto exchange was facilitating trade and investment in crypto assets like Bitcoin via 2 means – Indian rupee and WRX coins. WazirX was paying GST on 0.2% commission charged on the trade where the trader chooses to buy with rupees.

“But in cases where the trader opts for transaction in WRX coins, the commission charged is 0.1% of trading volume and they were not paying GST on this commission,” the tax department said.

It may be noted that WazirX is the most popular & biggest cryptocurrency exchange in the country but the flagrant violation of tax laws by the crypto exchange calls for deeper probe & alleged abuse of law. It was registered as Zanmai Labs in December 2017, as a domestic crypto start-up. However, this is not the first time that WazirX has come under the scanner of tax agencies. It has been under ED scanner for alleged money laundering and then was under probe for allegedly facilitating its platform to ‘Crypto King’ for the peddling of drugs in exchange for Bitcoins.

Earlier in June this year, WazirX was found to be involved in money laundering. The Enforcement Directorate (ED) issued a showcause notice to the WazirX and its founder & CEO Nischal Shetty to explain crypto transactions of Rs 2,971 crore under the Foreign Exchange Management Act (FEMA).

ED has issued Show Cause Notice to WazirX Crypto-currency Exchange for contravention of FEMA, 1999 for transactions involving crypto-currencies worth Rs. 2790.74 Crore.

— ED (@dir_ed) June 11, 2021

Reportedly, the illegal betting apps owned by Chinese nationals used WazirX to launder Rs 57 crore by depositing the amount into WazirX wallet and later converting them to Tether, a stablecoin. The company found itself in soup for not collecting required documents for confirming KYC details of its users.

Another row that rocked the WazirX crypto exchange was its association with ‘Crypto King’, who aided the drug peddlars in their business by facilitating trade in Bitcoins. Makarand P Adivirkar, aka “Crypto King,” charged in cash for Bitcoins that he provided to the drug peddlers. The crypto was later used by these peddlers to purchase drugs on the dark web. The arrest was made for the purchase of LSD and a psychotropic substance from a peddler in November 2020. The crypto platform he used for this was WazirX. However, the company denied that the accused was a WazirX user.

The apprehension & suspicion of illegal transactions happening under the garb of crypto currency trade has been a concern for long. Many reports suggested that the proceeds from crypto exchanges land up in hawala transactions & terror funding. The sudden spurt in crypto volumes across the globe has only given credence to the theory as governments have ‘no control’ over its financial transactions. Amid reports of crypto ban & regulation in India, this is something that weighed heavily on the minds of policy-makers.

‘Crypto currency & exchanges dealing in it should be the wealth facilitator & not the terror sponsors,’ is the basis behind new crypto law, which may become a reality in the country soon.