WaxirX ED Probe: Zanmai claims platform misused, says KYC for off-chain transactions available

A day after crypto exchange Binance halted off-chain transactions from Indian exchange WazirX, the Indian entity is now claiming that such transactions cannot happen without know-your-customer (KYC) details being submitted to it. In a statement, Zanmai Labs Pvt. Ltd., which runs WazirX in India, also said that it has cooperated with the ED “for several days” and responded to its queries transparently.

Off-chain transactions between Binance and WazirX allowed users to move their assets from one platform to the other without making a regular blockchain transaction. “As a result of the recent regulatory action taken against Zanmai Labs Pvt Ltd, in relation to their operations of the WazirX Exchange, it has come to our attention that some users were given to believe that funds deposited in WazirX were managed by Binance. This is not the case,” Patrick Hillmann, chief communications officer or Binance, said in a statement yesterday.

While users can still move their assets between the two platforms, they will now have to do so by making regular blockchain transactions. As a result, these transactions should be traceable through the blockchains involved.

“There seems to be a major misunderstanding about off-chain transactions between WazirX and Binance,” the Indian crypto exchange said in its statement. “Off-chain transactions between WazirX and Binance can only be done by a user between his/her/its own account on the two platforms. Hence, KYC details are available for all off-chain transfers as well [and have been submitted to the ED when requested]. Off-chain withdrawals also cannot happen if the accounts are not KYCed. Law Enforcement Agencies (LEAs) can get complete information about the accounts involved in off-chain transfers,” the statement added.

The off-chain transactions between the two platforms seems to have been a key concern for the ED. “Despite giving repeated opportunities, WazirX failed to give the crypto transactions of the suspect fintech APP companies and reveal the KYC of the wallets. Most of the transactions are not recorded on the blockchain also,” the ED said in a press release on August 5.

However, the enforcement authority has also accused WazirX creating a “web of agreements” to obscure the ownership of the exchange. The matter became even more controversial when Binance, which has been known to be the owner of WazirX since 2019, also said earlier this month that it doesn’t own any equity in Zanmai Labs.

In its statement, WazirX said that it’s able to produce KYC details for every transaction and has a “no-tolerance policy” towards illegal activities using WazirX. “We have fully cooperated with the Enforcement Directorate (ED) for several days and have responded to all their queries fully and transparently. ED appears to be investigating the transactions of certain users and Zanmai Labs has no affiliation to such users and is unaware about the purpose of their transactions. Zanmai Labs is in the position of any other intermediary whose platform may have been misused,” the statement said.