The ED is investigating a case where non-banking financial companies (NBFCs) and their fintech partners allegedly resorted to predatory lending practices, in violation of RBI guidelines. The agency also alleges that after the inquiry began, many of these companies shut up shop and diverted a large amount of funds through fintech companies to buy cryptocurrency assets, which were then laundered abroad. It recently searched premises linked to the popular cryptocurrency exchange WazirX and froze Rs 64 crore in its accounts in this connection.

The agency also alleges that these NBFCs employed tele-callers who misused personal data and used abusive language to charge high interest rates from the borrowers.

In August 2020, the agency froze close to Rs 47 crore belonging to a Chinese company allegedly running betting and loan apps in India illegally. The agency also searched 15 premises linked to the company, its directors and chartered accountants in Delhi, Gurgaon, Mumbai and Pune.

The agency then held online payment gateways such as PayTM, Razorpay and Cashfree accountable for “lax due diligence” and “non-reporting of suspicious transactions”, which it said allowed this betting racket to flourish. It suspects lax scrutiny on the part of the gateways could have enabled hawala transactions as well.

PayTM has considerable investments from Chinese company Alibaba.

According to the agency, some Chinese nationals floated multiple Indian companies with the help of Indian chartered accountants and Indian directors. Later Chinese nationals allegedly travelled to India and took over the directorship.

“Some locals were hired and used to open bank accounts with HSBC Bank and open trade accounts with online wallets namely PayTM, Cashfree, Razorpay etc. These online wallets had lax due diligence mechanisms and their non-reporting of suspicious transactions to the regulatory authorities helped the accused companies to launch pan-India operations,” the ED had said in a statement.

According to the agency, once bank accounts were opened, their login credentials were couriered by the Indian employees to China and major payment instructions came from the owners in that country. The companies allegedly floated many similar-looking websites hosted through Cloudfare in the US.

These websites attracted gullible people to place bets on various apps. A network of agents created closed groups on Telegram and WhatsApp and attracted lakhs of Indian customers, and referral codes were used to invite new members for commissions.

“PayTM and Cashfree were used to collect money and pay commission to all these agent members. Hundreds of websites were created to promote online betting under the garb of e-commerce. All websites were not activated daily. Some were activated for placing bets and the information on daily active websites was shared to members using Telegram groups,” the agency claimed in its statement.

The agency claimed to have identified multiple bank accounts mostly held with HSBC Bank. Analysis of two accounts of M/s Dokypay Technology Private Limited revealed that in the past one year, one account received Rs 1,268 crore, out of which Rs 300 crore came via PayTM, and that around Rs 600 crore was transferred out via the same gateway.

Account analysis of M/s Linkyun Technolgy revealed a similar pattern, the ED said, noting “outward foreign remittances for payments to the extent of Rs 120 crore” from these accounts. Unexplained transactions with other Indian companies running Chinese dating apps for Indian customers were also detected.

The agency said it was trying to obtain information from the online wallets and HSBC Bank.

Reacting to the raids, Razorpay said via a statement: “A few of our merchants were being investigated by law enforcement about a year and a half back. As part of the ongoing investigation, the authorities requested additional information to help with the investigation. We have fully cooperated and shared KYC and other details. The authorities were satisfied by our due diligence process.”