Tag: Foreign Exchange Management Act

RBI gives approval to LIC to hike stake in Kotak Bank to 9.99%

Banking & Finance

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The Reserve Bank of India has given its approval to Life Insurance Corporation of India to raise its stake in Kotak Mahindra Bank to 9.99 per cent.

“Kotak Mahindra Bank has received an intimation from LIC stating that the RBI had granted its approval to LIC for increasing its holding in the Bank up to 9.99 per cent of the paid-up equity share capital of Bank, subject to compliance with the provisions of the Master Direction on ‘prior approval for acquisition of shares or voting rights in private sector banks’ dated November 19, 2015, and Master Direction on ‘ownership in private sector banks’ dated May 12, 2016, provisions of the applicable regulations issued by the Securities and Exchange Board of India, provisions of the Foreign Exchange Management Act, 1999 and any other guidelines/regulations and statutes, as applicable,”the private sector lender said in a stock exchange filing on Monday.

The approval is valid for a period of one year, it further said.

LIC currently holds 4.96 per cent stake in the bank as of September 30.

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Indian crypto exchanges locking accounts on suspicious money laundering trades, BFSI News, ET BFSI

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Indian cryptocurrency exchanges are blocking and reporting suspicious trades on their won following concerns raised by the government agencies that the virtual currencies were used for money laundering.

The industry is looking to self-regulate at a time when the government is yet to come out with any regulations around cryptocurrencies or the way to tax them.

WazirX, one of the largest cryptocurrency exchanges in the country, recently declared the numbers in what it calls a “transparency report”.

Between April and September this year, the exchange got 377 requests from legal enforcement agencies, out of which 38 requests were from foreign law enforcement agencies.

The crypto exchange locked about 1,500 accounts.

In all, the exchange locked 14,469 accounts, although most of them were after customers asked them to stop services or there were some other payment issues.

The exchanges have always claimed that if the cryptocurrency is based on a blockchain technology, all the records are permanent and, in fact, it would be easier to discover the exact nature of the transactions.

Enforcement Directorate notice

IN July, the Enforcement Directorate (ED) in its recent notice to WazirX, has asked the crypto exchange to explain why ‘withdrawal from crypto wallets’ is not a violation of the Foreign Exchange Management Act (FEMA).

The ED notice had put a question mark on the very essence of cryptos and fundamental structure of the underlying digital ledger, blockchain, that allow holders of cryptos to freely transfer coins from their wallets to another wallet and to anyone, anywhere in the world. The agency had asked WazirX to explain transactions worth 2,790.74 crore. A trader buying Bitcoin, the most popular cryptocurrency, on WazirX stores the coin in her wallet with the exchange.

However, she can move the crypto purchased on WazirX platform to another wallet with another exchange in India or abroad, or to her private wallet which is not linked to any exchange, or directly move coins to the wallet of another person who may be located anywhere.

WazirX and a few exchanges have also received notices from the income tax department which is trying to figure out the source of earnings of the bourses and whether parts have escaped tax.

In 2019, the Financial Action Task Force — an intergovernmental organisation to combat money-laundering — had come out with the ‘Travel Rule’ that prescribes exchanges, custodians as well as wallet providers to share information on senders and recipients of cryptos.



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Enforcement Directorate seizes Rs 107 crore from Chinese loan app firm, BFSI News, ET BFSI

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HYDERABAD: A Chinese-controlled instant loan app firm, PC Financial Services Private Limited (PCFS), was booked by the Enforcement Directorate (ED) for violating the Foreign Exchange Management Act (FEMA) and Rs 107 crore lying in its bank accounts seized on Thursday.

PCFS runs an instant mobile loan app ‘Cashbean’ and is accused of remitting money abroad for non-existent software and marketing services. ED is probing several NBFCs for money-laundering via instant micro loans on mobile apps. “PCFS is a wholly-owned subsidiary (WOS)of Oplay Digital Services, SA de CV, Mexico, which isa WOS of TenspotPesa Limited, Hong Kong, owned by Opera Limited (Cayman Islands) and Wisdom Connection | Holding Inc(Cayman Islands). The ultimate owner is Zhou Yahui, a Chinese. The original Indian company PCFS was incorporated in 1995, got NBFC licence in 2002 and after RBI nod in 2018 ownership moved to Chinese controlled firm,” the ED said.

While the foreign parent firms of PCFS brought in Rs 173 crore as FDI for lending business, within a short time the company made foreign remittances of Rs 429 crore for fake software services received from related foreign companies.

“PCFS also showed high domestic expenditure of Rs 941 crore. Most of its foreign payments were made to companies related/owned by Chinese who run the Opera group. The Chinese picked the foreign service providers and price,” the ED said.

According to ED officials, all PCFS payments were as ordered by country head Zhang Hong who directly reports to Zhou. PCFS sent Rs 429 crore to 13 foreign companies in Hong Kong, China, Taiwan, US and Singapore in the guise of payments for license fee for Cashbean mobile app (Rs 245 crore/ annum), software technical fee (about Rs 110 crore) and online marketing & advertisement fee (about Rs 66 Crore).

“All these services are available in India at a fraction of the cost incurred by PCFS. All its clientele are in India but huge payments were made abroad without proof of receipt. During the same period, PCFS also booked domestic expenditure of similar amount under the same heads. PCFS management failed to give any justification for these expenses and admitted all remittances were done to move money out of India to accounts of group companies controlled by the Chinese promoter,” the ED said.



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ED serves notices for Euro Cup betting, games, misuse of cards, BFSI News, ET BFSI

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The Enforcement Directorate (ED) has shot hundreds of notices in the past one month to individuals for using international credit and debit cards to bet on Euro Cup matches, remitting funds for real money games (RMG) to offshore platforms, and not surrendering pre-loaded forex cards which are often preferred during foreign tours.

Also, several non-resident Indians (NRIs) have received notices for their transactions during the last one year while having overstayed in India in 2020-21 due to Covid-19. The law enforcement agency, which issued the notices under the Foreign Exchange Management Act (FEMA), is also questioning inflow and outflow of money for crossborder trades in Bitcoin and other cryptocurrencies on overseas crypto exchanges.

According to two persons aware of the ED action, the number of notices may have touched 1,000 in the past two months. “Most of the individuals who have come under attention are from Mumbai, Delhi, Pune, and Bengaluru,” said an ED official.

“Many have used international cards to place football bets with sites, which though legitimate services in those countries, may be considered a violation under FEMA. The re-use of preloaded forex cards is mostly out of carelessness, and may not be a conscious violation,” said another person.

Technically, under the regulations, a preloaded card can be used only by a person to whom the card has been issued. Also, a traveller is expected to return the card to the issuing bank. Many, however, let friends, family members and colleagues travelling abroad use their cards if there is unspent money.

“The real money gaming transactions have attracted the agency’s attention with the receipt of funds in several savings bank accounts… banks these days are quick to flag these off in their suspicious transaction report,” said a FEMA consultant.

While use of foreign exchange for online betting and gambling is construed as violation of foreign currency rules, as far as cryptos go, there is some division of opinion in the legal fraternity, with some under the impression that funds can be remitted under the Reserve Bank of India’s liberalised remittance scheme for buying digital assets abroad.

“But it’s unfortunate if NRIs are pulled up for FEMA violation because they could not fly out of India within the required period. Since they were stuck, there have been a higher number of transactions in their accounts during their stay here. This may have drawn ED’s notice,” said one of the sources.

According to current rules, NRIs staying for 182 days or more have to pay tax on their global income, while NRIs spending 120 days or more (but less than 182 days) have to pay tax on the total income, other than the income from foreign sources, as long as such earnings exceed Rs 15 lakh.



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ED issues show cause notice to WazirX, directors under FEMA

Banking & Finance

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The Enforcement Directorate has issued a show cause notice to cryptocurrency exchange Zanmai Labs Pvt Ltd, known as WazirX, and its Directors Nischal Shetty and Sameer Hanuman Mhatre under the Foreign Exchange Management Act, 1999 for transactions involving cryptocurrencies worth ₹2,790.74 crore.

In a statement, the ED said it has initiated FEMA investigation on the basis of the ongoing money laundering investigation into Chinese-owned illegal online betting applications.

Also read: Leading crypto exchanges scout entry into India despite potential ban

During the course of the investigation, it was seen that the accused Chinese nationals had laundered proceeds of crime amounting to about ₹57 crore by converting INR deposits into cryptocurrency Tether (USDT) and then transferring the same to Binance (exchange registered in Cayman Islands) Wallets based on instructions received from abroad.

“WazirX allows wide range of transactions with cryptocurrencies including their exchange into Indian rupees and vice-versa; exchange of cryptocurrencies; Person to Person (P2P) transactions; and even transfer and receipt of cryptocurrency held in its pool accounts to wallets of other exchanges which could be held by foreigners in foreign locations,” ED said.

WazirX does not collect the requisite documents in clear violation of the basic mandatory Anti-Money Laundering (AML) and Combating of Financing of Terrorism (CFT) precaution norms and FEMA guidelines, it further said.

In the period under investigation, users of WazirX, through its pool account, received incoming cryptocurrency worth ₹880 crore from Binance accounts and transferred out cryptocurrency worth ₹1,400 crore to Binance accounts.

None of these transactions are available on the blockchain for any audit or investigation, the ED said, adding that it was also found that customers of WazirX could transfer ‘valuable’ crypto-currencies to any person irrespective of its location and nationality without any proper documentation whatsoever, making it a safe haven for users looking for money laundering or other illegitimate activities.

Nischal Shetty, CEO and Founder, WazirX, however, said the company is yet to receive any show cause notice from the Enforcement Directorate.

“WazirX is in compliance with all applicable laws. We go beyond our legal obligations by following Know Your Customer (KYC) and Anti-Money Laundering (AML) processes and have always provided information to law enforcement authorities whenever required. We are able to trace all users on our platform with official identity information. Should we receive a formal communication or notice from the ED, we will fully cooperate in the investigation,” he said in a statement.

Concerns over KYC and money laundering have been raised with regard to cryptocurrencies globally. The circular by the Reserve Bank of India on May 31 had also asked banks to continue to carry out customer due diligence processes in line with regulations governing standards for KYC, AML, CFT and obligations of regulated entities under Prevention of Money Laundering Act, 2002.

Most cryptocurrency exchanges in the country say that they follow due diligence for KYC and AML.

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WazirX says didn’t receive any ED notice yet, BFSI News, ET BFSI

Personal Finance

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India‘s largest cryptocurrency exchange, WazirX co-founder Nischal Shetty said that it is yet to receive any show cause notice from the Enforcement Directorate.

Enforcement Directorate in a release had said it has issued a show cause notice to the crytpocurrency exchange and its directors Nischal Shetty and Sameer Mhartre under Foreign Exchange Management Act (FEMA) transactions involving cryptocurrencies worth Rs 2790.74 crore.

ED had initiated an investigation under FEMA 1999, on the basis of the ongoing money-laundering probe into Chinese-owned illegal online betting applications.

During the course of the investigation ED observed that the accused Chinese nationals had laundered proceeds of crime worth Rs 57 crore approximately by converting the INR deposits into crypto-currency Tether (USDT) and then transferring the same to Binance (exchange registered in Cayman Islands) Wallets based on instructions received from abroad.

Nischal Shetty said, “WazirX is in compliance with all applicable laws. We go beyond our legal obligations by following Know Your Customer (KYC) and Anti Money Laundering (AML) processes and have always provided information to law enforcement authorities whenever required. We are able to trace all users on our platform with official identity information. Should we receive a formal communication or notice from the ED, we’ll fully cooperate in the investigation.”



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ED issues show cause notice to WazirX for transactions involving cryptocurrencies worth Rs 2,790 cr, BFSI News, ET BFSI

Personal Finance

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The Enforcement Directorate has issued show cause notice to WazirX Cryptocurrency exchange and its directors Nischal Shetty and Sameer Hanuman Mhatre under Foreign Exchange Management Act for transactions involving cryptocurrencies worth Rs 2790.74 crore.

ED had initiated FEMA investigation into Chinese owned illegal online betting applications and during the course of the investigation ED observed that the accused Chinese nationals had laundered proceeds of crime worth Rs 57 crore approximately by converting the INR deposits into crypto-currency Tether (USDT) and then transferring the same to Binance (exchange registered in Cayman Islands) Wallets based on instructions received from abroad.

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