Home Technology ed: ED freezes Rs 370 crore of bank, Bengaluru ‘front company’ crypto balances

ed: ED freezes Rs 370 crore of bank, Bengaluru ‘front company’ crypto balances

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ed: ED freezes Rs 370 crore of bank, Bengaluru ‘front company’ crypto balances
The Directorate of Execution (OF) said on Friday that it had attached assets worth Rs 370 crore belonging to a Bengaluru-based company linked to the instant loan apps affair. Assets were parked in bank accounts, payment gateway balances and wallets on the Flipvolt crypto exchange. Flipvolt is the Indian branch of the Singaporean crypto lender Vault.

ED said it conducted searches at several premises associated with the company, Yellow Tune Technologies Pvt. Ltd, over three days starting August 8.

Vauld suspended all deposits and withdrawals on its platform in July, following the collapse of stablecoin TerraUSD and its sister token Luna. Later that month, Vauld signed an indicative term sheet to be fully acquired by Nexo, another crypto lender, pending due diligence. In July last year, Vauld raised $25 million under the Valar Ventures leadership of PayPal founder Peter Thiel.

Messages and emails sent to the exchange did not elicit an immediate response.

The ED said its investigation revealed that Yellow Tune was a front company with Chinese nationals on its board, and funds to the tune of Rs 370 crore were deposited by 23 entities, including financial firms Non-Banking Accused (NBFC) and their fintech arms, into the Indian rupee wallets of Yellow Tune.

“These amounts were nothing but proceeds of crime from predatory lending practices. The cryptocurrency so purchased was transferred to various unknown foreign wallet addresses,” the ED said in a statement.

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The agency said it conducted searches of various premises of Yellow Tune Technologies between Aug. 8 and Aug. 10 to locate the company’s owners and recipient wallets, but found them nowhere to be found.

“It appears that this fictitious entity was formed by Chinese nationals… with the active connivance of willing AC/CS and that the bank accounts were opened in the names of fictitious directors,” the agency said. “These Chinese nationals left India in December 2020 and later online banking credentials, digital signatures of fake administrators etc. were shipped overseas and used by said Chinese nationals to launder the proceeds of crime.”

This is the second time this month that the ED has frozen the bank accounts of a crypto exchange. In a press release last Friday, the agency said it had recently conducted searches against a director of Zanmai Labs, owner of the popular crypto exchange. WazirXand gave the order to
freeze its bank assets totaling Rs 64.67 crore.

The agency is investigating at least 10 cryptocurrency exchanges for allegedly laundering over Rs 1,000 crore identified as proceeds of crime by firms accused in the instant loan apps case, like
ET reported Thursday.

The ED said that Flipvolt failed to keep your customer records (KYC), did not have a foolproof due diligence mechanism, did no verification of the source of depositors’ funds and did not had not raised Suspicious Transaction Reports (STRs), thus helping the accused NBFCs to launder money. The agency also said the exchange had not cooperated with the investigation despite repeated requests.

“Lax KYC standards, loose regulatory control of allowing transfers to foreign wallets without asking for any reason/declaration/KYC, not registering transactions on blockchains to reduce costs, etc., have made such that Flipvolt is unable to account for the missing crypto assets. It has made no sincere effort to trace these crypto assets,” the statement read.

“By encouraging obscurity and having lax anti-money laundering standards, he actively assisted Yellow Tune in laundering proceeds of crime worth Rs 370 crore using the crypto route. Hence, equivalent moveable assets to the extent of Rs 367.67 crore lying with crypto exchange Flipvolt in the form of bank and payment gateway balances worth Rs 164.4 crore and crypto assets lying in their pool accounts worth Rs 203.26 crore, are frozen,” he added. The agency said it had successfully traced Rs 2.31 crore of Yellow Tune’s assets so far.

fear, uncertainty, doubt

ED’s actions come at a time when funds from Vauld users have been withheld for more than a month due to the financial difficulties the company is facing. The Coinbase Ventures-backed company disclosed a $70 million shortfall in a letter to its creditors in July.

Since Thursday, Vauld’s Telegram channel has been swarming with questions from users seeking clarification on ED’s actions against the crypto lender. One of the main concerns has been the impact of the agency’s action on the Nexo deal.

“If you were Nexo, why would you want to get involved,” said one Telegram channel user. “Why would Nexo enter into a deal with Vauld where ED froze its funds?” read another message.

“Let’s just accept that we lost our money and don’t worry about it. Here we go,” a user named Arya posted on Vauld’s official Telegram channel.

Vauld’s customer service reps had simply said the company would respond in “two business days.” This is the second time that Vauld users have found themselves with more questions than answers. Vauld has also been criticized for pushing a risky product using financial influencers in the Indian market.

Co-founder Darshan Bathija had blamed the company’s situation on the decline in the cryptocurrency market triggered by the collapse of Terraform Lab’s stablecoin UST, the Celsius network suspending withdrawals and the default of payment by Three Arrows Capital on their loans.

Chinese Link Loan Application
Thousands of instant loan application companies are under the scrutiny of various investigative agencies including the ED, Income Tax, Department of Corporate Affairs and police in various states across the country, officials say. .

The MCA investigation found that most of these China-related entities use a similar mode: local entities are incorporated by chartered accountants by filing fabricated documents and registering them when the companies do not actually exist. These companies are then transferred to Chinese partners by deceiving the Registrar of Companies (RoC), the government had told the Supreme Court in one of the cases heard by the Supreme Court.

“Example this: A lending app company uses a popular fintech platform to receive and make payments. Since the amounts are in the thousands and the system only shows payments made and payments to said fintech, the bank does not issue STRs. This allows the company to operate in opacity and escape scrutiny,” an official said.

Another official said: “Now when the company learns that it is under investigation, it quickly withdraws the money from the wallets and uses it to buy cryptos, and these are sent immediately. to international portfolios. The trail of these proceeds of crime becomes difficult to detect because the exchange could facilitate with KYC but has no information about the crypto-to-crypto transfer made by the accused.

In this case, the company whose wallet was used to store the alleged proceeds of crime is a front company with Chinese nationals on board, the officer added.

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