Pramesh S Jain
The Enforcement Directorate (ED) has conducted searches at three premises in Bengaluru and one in Madhya Pradesh in connection with an investigation into alleged violations of the Foreign Exchange Management Act (FEMA) involving unauthorised cross-border money transfers through cryptocurrencies, particularly stablecoins.
The searches were conducted by the ED’s Bengaluru Zonal Office on October 27 under Section 37 of FEMA, 1999.
The investigation concerns entities associated with cryptocurrency platforms Mudrex and Instadapp, which allegedly facilitated cross-border financial transactions by using virtual digital assets (VDAs) to bypass authorised banking channels.
According to an ED press release issued on October 29, the investigation was initiated following complaints alleging large-scale FEMA violations by Bengaluru-based RPAS Technologies Private Limited, which operates the platforms Mudrex and Saber money.
The agency said its preliminary findings revealed the alleged circumvention of FEMA regulations through an unauthorised cross-border payment system using crypto tokens, particularly USDT/USDC stablecoins.
The entities allegedly advertised instant international money transfers through cryptocurrencies without the required authorisation from the Reserve Bank of India (RBI).
The platforms reportedly offered services to buy, sell and swap cryptocurrencies, as well as convert fiat currency into crypto assets and back, facilitating international transfers.
The ED said its investigation had identified large-volume over-the-counter (OTC) deals involving shell entities, particularly those incorporated in Canada, Lithuania, the United States and other jurisdictions.
These entities allegedly operated foreign-based cryptocurrency trading platforms to facilitate unauthorised cross-border transfers.
The agency also alleged that the entities used foreign-based cryptocurrency platforms to purchase or sell foreign-based crypto assets and settle transactions through Indian bank accounts, in violation of FEMA provisions.
It further alleged that expenses in foreign countries were being paid using cryptocurrencies in contravention of the law.
Crypto balances worth more than Rs.4,600 crore :
The ED said its preliminary findings indicated that unauthorised cross-border transfers and crypto balances held on foreign platforms amounted to more than Rs.4,600 crore.The investigation is ongoing.
Instadapp-linked entities under scrutiny :
The searches also covered premises linked to Instadapp, described by the ED as a decentralised finance (DeFi) protocol deployed on the Ethereum blockchain.
The platform enables users to undertake lending, borrowing and swapping activities using cryptocurrencies.
According to the agency, the investigation revealed that Instadapp was founded in 2018 and operated under the name Fluid.
It allegedly earned revenue through fees charged on lending, borrowing and swap transactions, while users could lend crypto assets, borrow against holdings and swap tokens.
The ED said Instadapp was shown as being run by US-registered company Instadapp Labs LLC, while its intelligence gathering revealed that it was managed from India.
The agency alleged that several related entities had no physical offices or employees at their registered addresses abroad and were effectively managed by persons based in India.
The search operations covered two premises in Bengaluru and one in Madhya Pradesh in connection with the Instadapp/Fluid investigation.
The ED alleged that the entities received substantial revenues from Instadapp DeFi protocol activities and from investors who received stablecoins in multi-signature wallets.These wallets were reportedly controlled by persons based in India.
According to the agency,stablecoins were sold through platforms in Singapore, and the proceeds were credited to Singapore bank accounts.
Funds were subsequently routed to India as remittances for software development and consultancy fees paid to Indian-based entities.
The ED also alleged that prepaid cards linked to Singapore-based banks were used in India to meet expenses incurred by Indian-based entities.
The agency said preliminary investigations had revealed alleged FEMA contraventions amounting to approximately US $40 million in the Instadapp-related matter.Further investigation is in progress.
