China-Funded Lending App Used Weak Crypto Exchange to Siphon Money; ED dismantles Bengaluru-based front company

Bangalore, first published Aug 12, 2022, 7:58 PM IST

The Law Enforcement Directorate attached deposits worth Rs 370 crore from a Bengaluru-based “shell” company set up by two Chinese nationals who left the country in 2020. ‘ED came after the agency raided the premises of Yellow Tune Technologies Private Limited.

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The raids, which began on August 8 as part of an ongoing money laundering investigation against some questionable smartphone lending apps, lasted three days. During the raids, the agency reportedly uncovered illegal activities, which were “supported” by Chinese funds. The raids were carried out to locate the company’s “beneficial owners” and the recipients’ wallets. However, the promoters are nowhere to be found.

According to agency officials, these apps embezzled their profits after the store closed. Going through the money trail, ED officials discovered that deposits from 23 entities, including accused NBFCs (non-bank financial companies) and their fintech companies, worth 370 crores of rupees in wallets of Yellow Tune Technologies Private Limited held with crypto exchange Flipvolt Technologies Private Limited.

The Law Enforcement Branch believes these amounts were proceeds of crime from abusive lending practices. He further claimed that the cryptocurrency, thus purchased, was transferred to various unknown foreign wallet addresses.

The agency, in a statement, said Chinese nationals Alex and Kaidi (real names unknown) set up the shell company with the active complicity of willing company secretaries and accountants. They created bank accounts in the names of bogus directors.

In December 2020, the Chinese nationals left India and later obtained the bank’s internet credentials and digital signatures from dummy administrators transferred overseas. This allowed Chinese nationals to “launder the proceeds of crime”.

Cryptographic errors?

Crypto exchange Flipvolt, which has “very lax KYC standards, no control over the source of depositor funds, no EDD (extended due diligence) mechanism, and no STR (suspicious transaction reporting) collection mechanism”, reportedly helped Yellow Tune to avoid regular banking channels. This allowed the front company to easily withdraw all fraud money in the form of crypto assets.”

Crypto exchange Flipvolt is said to have “failed” to fully trace crypto transactions made by Yellow Tune Technologies Private Limited despite the ED offering repeated opportunities.

The ED said crypto exchange Flipvolt was unable to provide the details due to its lax KYC standards, unrecorded transactions on blockchains to reduce costs, and loose regulatory scrutiny to allow transfers to foreign wallets without asking for a reason or declaration.

The ED further claimed that crypto exchange Flipvolt has made no credible effort to trace crypto assets. The agency accused her of actively aiding Yellow Tune in laundering proceeds of crime worth Rs 370 crore using the crypto route by encouraging obscurity and having AML (anti-money laundering) standards. money) lax.

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Last updated Aug 12, 2022 7:58 PM IST

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