India's Enforcement Directorate (ED), a law enforcement agency that investigates financial crimes, has frozen assets worth 3.7 billion rupees (around $46 million) belonging to Vauld, a troubled crypto lender.
ED conducted searches on an Indian company called Yellow Tune Technologies and found that this company, a client of Vauld's Indian entity Flipvolt Technologies, was involved in a money laundering case, according to a statement on Friday. The case is linked to Chinese loan apps that were involved in digital lending in India.
Since 2019, most Chinese companies were reportedly entering India for lending business by establishing fintech apps, but as the Reserve Bank of India (RBI) was not giving them a non-banking financial company (NBFC) license, they were making agreements with local NBFCs.
"While doing fund trail investigation, ED found that large amount of funds to the tune of Rs 370 Crore were deposited by 23 entities including accused NBFCs and their fintech companies into the INR wallets of M/s Yellow Tune Technologies Private Limited held with Crypto Exchange M/s Flipvolt Technologies Private Limited. These amounts were nothing but proceeds of crime derived from predatory lending practices," ED said.
It went on to say that Yellow Tune Technologies — with assistance from Flipvolt — helped accused fintech companies in avoiding regular banking channels and taking out all the fraud money in the form of crypto assets.
ED further said that Vauld failed to provide the complete trail of crypto transactions made by Yellow Tune Technologies and that it maintains lax know-your-customer (KYC) and anti-money laundering (AML) processes.
"By encouraging obscurity and having lax AML norms, it has actively assisted M/s Yellow Tune in laundering the proceeds of crime worth Rs 370 Crore using the crypto route. Therefore, equivalent movable assets to the extent of Rs 367.67 Crore lying with Flipvolt Crypto-exchange in the form of Bank and Payment Gateway Balances worth Rs 164.4 Crore and Crypto assets lying in their pool accounts worth Rs 203.26 Crore, are frozen under PMLA, 2002, till complete fund trail is provided by the crypto-exchange," said ED.
ED's action is the latest blow for Vauld, which last month halted client withdrawals and owes a total of $402 million to creditors, as The Block reported at the time. Of that sum, $363 million — or 90% — comes from individual retail investors' deposits.
Vauld has sought protection from creditors. Earlier this month, it received three months from the Singapore High Court to continue exploring its options. Vauld now has until November 7 to decide its path forward.
Vauld is currently in a due diligence process by rival Nexo for a potential acquisition deal. It remains to be seen whether the deal goes through, given these latest developments.
This is ED's second such move in the crypto space in recent days. Last week, the Indian law enforcement agency froze bank balances worth 647 million rupees belonging to WazirX, a local crypto exchange.
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