Decentralised cryptocurrency has steadily been part of the popular narrative over the last year or two. On the other side, digital currency has offered a platform for online illegal activities such as tax evasion and other types of significant fraud.
Between April and September 2021, the main three cryptocurrency exchanges – WazirX, CoinSwitch Kuber, and CoinDCX – blocked almost two lakh accounts on the grounds of malicious activity.
In the last six months, CoinSwitch Kuber alone has terminated 180,000 accounts, and it is presently monitoring the daily activity of about 200,000 accounts that could be malicious, according to Sharan Nair, CoinSwitch Kuber’s CBO.
Following inquiries from Indian and foreign law enforcement agencies, WazirX has blocked 14,469 accounts. There were 38 inquiries from foreign law enforcement authorities. These came from the United States, the United Kingdom, France, Austria, Switzerland, and Germany. However, after complaints from other users and the company’s internal tracking process, over 90% of the accounts were blocked.
“WazirX is part of Blockchain and Crypto assets Council (BACC) along with other crypto exchanges. Our exchange is able to trace all users on the platform with official identity information. We already have a robust KYC and AML enabled policy that we follow to self-regulate in the absence of regulatory guidelines. All the necessary information to track malicious activities that are “facilitated” by blockchains are publicly available.” Nischal Shetty, Founder of WazirX, said.
“Additionally, WazirX has collaborated with TRM Labs, a cryptocurrency compliance platform, for transaction monitoring and investigation, wallet screening and risk management. It has helped bolster the security of the platform and scale compliance initiatives,” he added.
WazirX has been notified.
The Enforcement Directorate has issued WazirX a show-cause notice for alleged violations of the Foreign Exchange Management Act on transactions using crypto-currencies worth Rs. 2,790 crore. The ED then announced that it has launched an inquiry into Chinese-owned unlawful betting apps as part of its continuing money-laundering investigation.
The Pandora’s box, according to Nair, opens when one may transmit cryptocurrency outside of the exchange. “The regulators’ primary concern is consumers buying bitcoins on one platform and transmitting them to unknown addresses.” Nobody knows who these addresses belong to or what the purpose of these addresses is. Even cryptocurrency exchanges will be unable to trace it, according to Nair.
To address this problem, CoinSwitch Kuber prohibits users from withdrawing or moving cryptocurrency funds. To withdraw their funds, users must first sell the crypto asset on the exchange and have the funds paid straight into their Indian rupee bank accounts.
The Pandora’s box, according to Nair, opens when one may transmit cryptocurrency outside of the exchange.“The biggest problem the regulators have is with people buying bitcoins on one platform and sending it to unknown addresses. Nobody is able to track who these addresses belong to and what is the intent of these addresses. Even the crypto exchanges won’t be able to track it,” Nair said.
Regulation is lacking.
Though the exchanges themselves are blocking dubious accounts, policy experts say the true issue is a lack of regulation.
“The crypto world is largely unregulated. While the Reserve Bank of India has already expressed its reservation in allowing cryptocurrency, the government is yet to announce its stance on the issue,” said an industry expert.