Virtual crypto currency exchanges have emerged as the new tax havens laundering large amount of illegal cash with anonymity as more than Rs 4,000 crore of such transactions have been unearthed by the Enforcement Directorate in the past one year alone.
In June this year, ED issued a show cause notice to one leading exchange in India after the agency failed to track the real beneficiary who had laundered more than Rs 2,800 crore using crypto currency. In two related transactions, the agency found receipt of Rs 880 crore and transfer of Rs 1,400 crore worth of crypto currencies, but none of the transactions had details of beneficiaries.
In this particular case, criminals converted ‘proceeds of crime’ stashed in Indian rupee into crypto currency ‘Tether’ and then transferred the same to ‘Binance Wallets’, a crypto wallet service registered in Cayman Island where the illegal money was converted into dollars with the ease of being laundered back into the legal banking system using shell companies.
This Indian virtual crypto currency exchange, according to the ED, provided all services of conversion of Indian rupee into virtual currency and end-to-end transactions in complete secrecy, including person-to-person transactions in foreign locations.
“None of these transactions are available on the blockchain for any audit/investigation. It was found that the clients 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/other illegitimate activities,” the ED said in its recent show cause notice to one of the crypto exchanges in India.
The government listed a bill in the forthcoming winter session of Parliament to ban all private crypto currencies not only to curb increasing instances of money laundering in the country using the virtual currency but also to meet the standards set by the Financial Action Task Force (FATF), the Paris-based intergovernmental watchdog.
In a paper released on crypto currencies, the intergovernmental body had noted that many of these exchanges are “designed to avoid regulatory law enforcement scrutiny and help criminals distribute, store and launder the proceeds of credit card fraud, identity theft, investment fraud, computer hacking, narcotics trafficking and child pornography by enabling them to conduct anonymous and untraceable financial transactions”.
In one such case mentioned by the FATF in its study, an entity Liberty Reserve, having its own crypto currency called Liberty Dollars, was busted by the US enforcement agencies. The money transmitter operated on a massive scale with more than a million users worldwide and over 55 million transactions, all found to be illegal. In December, the ED had arrested one person from Bhavnagar, Gujarat who was found to be transferring a large amount of ‘proceeds of crime’ from illegal online betting to Chinese nationals out of the country converting Indian rupee into crypto currency.