ED issues notice to crypto exchange

ED issues notice to crypto exchange

Good evening,

Earlier today, the Enforcement Directorate issued a notice to cryptocurrency exchange WazirX and its directors under the Foreign Exchange Management Act. The company said it is yet to receive the notice but promised full co-operation when it does.

Also in this letter:

🛒 CCI to restart probe against Amazon, Flipkart
🚖 Didi Chuxing files for IPO in the US
📱 Smartphone brands ramp up launches

ED asks WazirX to explain transactions worth Rs 2,790 crore

Daffy probe

GIF Credit: Tenor

Hi, it’s Apoorva (part of the tech and startups team at ETtech, where among other things I cover the crypto world — follow me here).

India’s largest crypto exchange WazirX, and its two directors Nischal Shetty and Sameer Hanuman Mhatre, have been issued a show-cause notice by the Enforcement Directorate (ED) to explain crypto transactions worth Rs 2,790.74 crore under Foreign Exchange Management Act, 1999, (FEMA). As of writing this, WazirX maintained that it had not received the notice.

What’s ED saying? For that, we need to rewind a bit. Last year, the ED had arrested a Chinese national Yan Hao and two of his Indian associates on the charges of money laundering through illegal online betting. The agency had said that transactions worth Rs 1,000 crore are under scanner. Subsequently, raids were also carried out in Mumbai, Pune, Delhi and Gurgaon.

During the betting apps investigation, ED found out that accused Chinese nationals had laundered proceeds of crime worth Rs 57 crore using the stablecoin Tether. It said the Chinese nationals converted their Indian rupee deposits into the USDT and transferred them to wallets of the cryptocurrency exchange Binance, based in the Cayman Islands, which fully acquired WazirX in 2019. It is unclear from the notice what role (if any) WazirX has played in this transaction.

The ED’s notice also said there was no record of transactions worth more than Rs 2,000 crore between Binance and WazirX on the blockchain for any audit or investigation. All crypto lives on a blockchain and all transactions are recorded on it — this is one of its major anti-corruption features that crypto enthusiasts tout.

The absence of such a record caused the ED to suspect that bad actors could be using WazirX to cover up illicit activities.

The ED also alleged that WazirX does not collect enough documents to comply with guidelines on money laundering, know your customer, and combatting financial terrorism. A WazirX spokesperson told ET the company follows all requisite guidelines, in line with “global best practices”.

WazirX chief executive Nischal Shetty said the company was yet to receive the ED notice but promised full co-operation when it does get the formal communication.

Just a week ago, the Reserve Bank of India had asked banks to conduct due diligence on customers to check that they were compliant with these guidelines.

What’s next?

The ED’s notice to WazirX is NOT for a money-laundering investigation. The agency has initiated a probe under the Foreign Exchange Management Act (FEMA). Violating this law is a civil offence and not — like money laundering — a criminal one. WazirX will now be expected to explain the transactions worth almost Rs 2,000 crore, and name the beneficiaries.

Its parent company Binance meanwhile has been dealing with its own set of investigations. In May, Bloomberg reported that the company was being investigated by the US Internal Revenue Service and the Department of Justice in relation to money laundering and tax offences.

Also read: Thanks to crypto curbs, India missing out on multiple $50-100B listed firms, says Binance CEO

I will now pass it on to Vikas SN for the remaining top stories of the day

CCI to restart probe against Amazon, Flipkart

Flipkart Amazon CCI

India’s antitrust regulator Competition Commission of India (CCI) may restart its investigation into the business practices of e-commerce majors Amazon and Walmart-owned Flipkart after the Karnataka High Court dismissed their plea to quash the investigation.

Catch up quick: CCI had ordered a probe against the two firms last January, saying it had ‘prima facie’ evidence to start an investigation under Section 26 (1) of the Competition Act, 2002. This followed allegations from trade bodies such as the Confederation of All India Traders (CAIT) and Delhi Vyapar Mahasangh (DVM) on the companies’ deep discounts for customers favourable terms for select sellers.

In its order, the CCI had noted at the time that exclusive launches of select mobile phones, along with preferential treatment for some sellers and discounting practices of platforms, could have an adverse effect on competition. The allegations warranted a “holistic investigation” of vertical agreements and their effect on competition, it added.

Amazon and Flipkart then moved to the Karnataka High Court, which granted an interim stay on the probe last February. CCI moved the Supreme Court against the stay in October but was referred back to the Karnataka High Court.

What’s next? It is likely that both Flipkart and Amazon India will once again challenge this order, sources told us.

Tweet of the day

‘China’s Uber’ Didi Chuxing files for IPO

Didi headquarters in Beijing

Chinese ride-hailing giant Didi Chuxing has filed for a long-anticipated initial public offering in the US, in what could potentially be the world’s biggest IPO this year. While the company didn’t disclose how much it plans to raise through this issue, it could rake in around $10 billion and seek a valuation of close to $100 billion, according to Reuters.

  • Didi Chuxing was most recently valued at $62 billion last August, according to PitchBook. If the issue goes through at this valuation, it would be the largest Chinese offering in the US since Alibaba’s $25-billion IPO in 2014.

Financials: The ride-hailing hailing major reported a $1.6 billion loss on $21.6 billion revenue in 2020, as compared to a $1.48 billion loss on $23.6 billion revenue in 2019. For the quarter ended March 31, 2021, Didi Chuxing posted a net profit of $0.8 billion on revenue of $6.4 billion.

Didi Chuxing key metrics

China vs other markets: While Didi Chuxing operates in 15 countries, about 94.3% of the company’s revenue came from China and just 1.6% from its International operations in 2020. Other initiatives including bike-sharing, intra-city freight, auto solutions, autonomous driving and financial services accounted for the remaining 4.1%.

China accounted for 84.5% of the 2.7 billion transactions in Q1 2021, while the remaining 15.5% came from International markets. In terms of the gross transaction value (GTV), China contributed 87.5% of $9.5 billion GTV in Q1 2021, while 12.5% was from international markets.

Key Investors: SoftBank is the biggest investor in Didi Chuxing with a 21.5% stake, followed by rival Uber (12.8%) and Tencent (6.8%). Uber sold its China business to Didi Chuxing in 2016 in exchange for an 18.8% stake in the company.

Founder Cheng Wei owns 7% of the company’s shares and controls 15.4% of its voting power while president Jean Liu owns 1.7% of shares with 6.7% voting power, according to the IPO prospectus.

ETtech Deals Digest

Software-as-a-service firms Whatfix and Zenoti saw big funding rounds this week, while Tata Digital bet on health and fitness startup Curefit and acquired online pharmacy 1mg.

deals digest

Smartphone brands ramp up product launches


Smartphone brands are advancing their product launches and intensifying their marketing activity in the July-September quarter to tap pent-up demand in India. This move also comes amid fears that the crucial festive season will be affected by a third Covid wave.

  • India’s smartphone sector saw a sharp sales rebound in Q3 last year, clocking a record 53 million shipments as against a meagre 18 million in Q2 2020. It saw significant growth in shipments for two more quarters before the onset of the second Covid wave.

Yes, but: The industry is still sceptical about launching products priced above Rs 30,000 because that segment is expected to see very little engagement, an executive at a leading brand told us.

The second wave upended all business projections of the country’s smartphone sector, with market trackers sharply cutting their shipment growth estimates to either flat or a mere 1% increase this year. Earlier forecasts had said the industry would grow 16%.

E-commerce majors Flipkart and Amazon may also ditch their annual pre-Diwali sales this year if there’s another surge in Covid-19 cases around that time, we reported earlier today. Instead, they could host low-key sales under different names.

Today’s ETtech Top 5 was written by Vikas SN in Bengaluru and edited by Zaheer Merchant in Mumbai.

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