ED searches Bengaluru, MP locations in Rs 5,000 crore crypto transfer case

The Enforcement Directorate (ED) conducted searches at three locations in Bengaluru and one in Madhya Pradesh in connection with alleged unauthorised cross-border financial transactions worth up to Rs 5,000 crore using cryptocurrencies, especially stablecoins, the agency’s Bengaluru zonal office said on Thursday.

The ED had registered a case over alleged large-scale Foreign Exchange Management Act (FEMA) violations by crypto investment and trading platforms Mudrex and Saber.money involving Instadapp and other entities.

According to the agency, Bengaluru-based RPAS Technologies Private Limited, which operates Mudrex and Saber.money, was allegedly violating FEMA norms. The platforms facilitated cross-border money transfers through crypto assets, bypassing authorised channels for international remittances, the agency claimed.

The searches were conducted on Tuesday.

Unauthorised remittances through crypto platforms

The ED said the platforms advertised instant international money transfers through cryptocurrency, offering users services to buy, sell, swap and convert fiat currency into crypto assets and back. The entities allegedly provided cryptocurrency on-ramp and off-ramp services that enabled users to convert conventional currencies, such as the Indian rupee, US dollar and euro, into virtual digital assets and subsequently withdraw the proceeds into bank accounts.

The alleged modus operandi involved users registering on the platforms and depositing money into the company’s bank accounts. The funds were then allegedly used to purchase virtual digital assets, particularly stablecoins such as USDT. These assets were subsequently sold on Indian cryptocurrency exchanges, with the sale proceeds remitted to the intended recipients, according to the investigation.

The ED alleged that such transactions were carried out without the required authorisation from the Reserve Bank of India, thereby circumventing the regulatory framework governing cross-border remittances. The investigation has also identified alleged transactions involving over-the-counter cryptocurrency trading platforms incorporated in Canada, Lithuania and the United States, among other jurisdictions.

The ED said these foreign-based platforms were allegedly used for unauthorised cross-border money transfers. The agency is examining transactions involving stablecoins and other crypto assets to establish the extent of the alleged FEMA violations. Preliminary findings also indicate that the entities spent money on cryptocurrency-related activities in foreign countries, allegedly in violation of FEMA provisions.

Story continues below this ad

Instadapp transactions under scanner

The ED investigation has also covered Instadapp, a decentralised finance protocol deployed on the Ethereum blockchain. The platform provides services that allow users to manage decentralised financial activities, including lending, borrowing and swapping cryptocurrency through smart contracts.

The agency alleged that the business was managed from India by Somay Walia, identified as one of its founders. Its investigation allegedly revealed that several associated entities did not have physical offices or employees at their registered addresses and were allegedly operating from India. The agency is examining whether income earned in foreign currency was brought into India in violation of FEMA requirements.

According to the ED, the investigation revealed that funds raised from investors were received as stablecoins in multi-signature wallets of Instadapp Labs Ltd. The stablecoins were allegedly sold through entities identified as Independent Reserve Singapore and QCP Capital Singapore, after which the proceeds were credited to Singapore bank accounts held by the associated entities.

The agency alleged that funds were subsequently routed to India as remittances for software development and consultancy fees paid to Indian-based entities. It is also examining allegations that prepaid cards issued by Singapore-based banks were used in India to meet expenses of Indian-based entities. The ED further alleged that money from Singapore bank accounts was routed to Dubai bank accounts of founders of the Instadapp platform.

Story continues below this ad

Preliminary investigations have indicated alleged FEMA contraventions amounting to approximately US$40 million (about Rs 340 crore) in the Instadapp-related transactions, the agency said.

The ED said the investigation into the transactions and the entities involved is continuing.