Indian Enforcement Directorate Investigates Crypto Platforms for Alleged FEMA Violations

The Enforcement Directorate (ED) in India has conducted searches at two cryptocurrency platforms based in Bengaluru, CoinDCX and Delta Exchange, as part of an investigation into alleged violations of the Foreign Exchange Management Act (FEMA). The ED claims these platforms facilitated offshore trading of cryptocurrency derivatives and tokenized foreign stocks for Indian customers, potentially circumventing cross-border financial regulations.

Allegations of Regulatory Non-Compliance

According to an ED officer, the investigation was prompted by information suggesting large-scale FEMA violations. CoinDCX allegedly routed transactions through accounts of a shell entity based in Costa Rica on foreign cryptocurrency exchanges. These platforms are accused of offering products such as derivatives trading in crypto tokens, including futures and options, and trading in real-world asset (RWA) tokens and tokenized stocks of foreign companies without proper authorization.

Transaction Mechanisms Under Scrutiny

Evidence gathered during the searches indicates that funds deposited by Indian customers were allegedly converted into stablecoins like USDT and transferred to overseas exchanges, including Binance, KuCoin, Gate.io, and Bybit, to execute trading orders. The ED claims that these transactions were undertaken by circumventing established frameworks for cross-border money transfers. Furthermore, the ED alleges that CoinDCX maintained trading accounts on overseas exchanges and held crypto assets in violation of FEMA, paying significant transaction fees to foreign exchanges using stablecoins.

Delta Exchange's Alleged Role

The ED also found that Delta Exchange India allegedly routed a substantial volume of its derivatives and tokenized stock trades through CoinDCX, which then executed them on overseas exchanges. The total value of these alleged cross-border transactions is reported to be in the thousands of crores of rupees. Delta Exchange is also accused of transferring hundreds of crores of rupees to associated overseas entities.