Chinese-funded loan app used weak Crypto exchange to siphon-off money; ED busts Bengaluru-based shell company
Enforcement Directorate's action on a Bengaluru-based shell company clearly shows the danger posed by unregulated crypto exchanges operating within the country and how Chinese racketeers operating loan apps are using these crypto exchanges to divert money abroad.
The Enforcement Directorate has attached Rs 370 crore worth of deposits of a Bengaluru-based 'shell' company created by two Chinese nationals who left the country in 2020. The ED action came after the agency raided the premises of Yellow Tune Technologies Private Limited.
The raids, which began on August 8 in connection with an ongoing money laundering probe against some dubious smartphone-based loan lending apps, lasted three days. During the raids, the agency allegedly uncovered illegal activities, which are believed to have been "backed by" Chinese funds. The raids were conducted to locate the firm's "beneficial owners" and the recipient wallets. However, the promoters are untraceable.
According to agency officials, these apps diverted their profits after shutting shop. While going behind the money trail, ED officials found that deposits by 23 entities, including accused NBFCs (non-banking financial companies) and their fintech companies, worth Rs 370 crore in the wallets of Yellow Tune Technologies Private Limited held with crypto exchange Flipvolt Technologies Private Limited.
The Enforcement Directorate believes that these amounts were proceeds of crime sourced from predatory lending practices. It further claimed that cryptocurrency, so purchased, was transferred to various unknown foreign wallet addresses.
The agency, in a statement, said that Chinese nationals Alex and Kaidi (real names not known) created the shell company with the active connivance of willing company secretaries and chartered accountants. They created bank accounts in the name of dummy directors.
In December 2020, the Chinese nationals left India and later got the bank internet credentials and digital signatures of the dummy directors transferred abroad. This enabled the Chinese nationals to "launder the proceeds of crime."
Flipvolt crypto exchange, which has "very lax KYC norms, no check on the source of funds of the depositor, no EDD (extended due diligence) mechanism, and no mechanism of raising STRs (suspicious transaction reports), allegedly assisted Yellow Tune in avoiding regular banking channels. This enabled the shell company to easily take out all the fraud money in the form of crypto assets."
Flipvolt crypto exchange allegedly "failed" to give the complete trail of crypto transactions made by Yellow Tune Technologies Private Limited despite the ED giving repeated opportunities.
The ED said that Flipvolt crypto exchange was unable to provide the details because of its lax KYC norms, non-recording transactions on blockchains to save costs and loose regulatory control of allowing transfers to foreign wallets without asking any reason or declaration.
The ED further claimed that Flipvolt crypto exchange made no credible efforts to trace the crypto assets. The agency accused it of actively assisting Yellow Tune in laundering the proceeds of crime worth Rs 370 crore using the crypto route by encouraging obscurity and having lax AML (anti-money laundering) norms.