The Enforcement Directorate is investigating CoinDCX, Delta Exchange, Mudrex, and Saber Money for alleged FEMA violations. Between November 4 and 5, the agency started probes into unauthorised cross-border transactions involving stablecoins and tokenised US stocks. "Preliminary findings revealed contravention of FEMA through unauthorised cross-border money transfer," the ED said.
In the past few weeks the Enforcement Directorate (ED) has been actively investigating major Indian crypto exchanges and investment platforms including CoinDCX, Delta Exchange, Mudrex and Saber Money alleging them of violating Foreign Exchange Management Act (FEMA), 1999, citing unauthorised cross-border financial transactions through stablecoins. Stablecoins or USDT in these cases are crypto tokens whose valuation is pegged to US dollar. What were the allegations? Between November 4 and 5, ED initiated investigation following information about alleged large-scale FEMA violations by Neblio Technologies Private Limited, which operates CoinDCX, and Excelium Technologies Private Limited, which operates Delta Exchange.
The ED targeted two specific offerings including cryptocurrency futures and options (F&O) and trading in tokenised stocks of US companies such as Apple, Google, Tesla, despite allegedly not being authorised to offer such products. The volumes of such transactions ran into thousands of crores, according to a statement issued by the agency. Users were trading in F&O and tokenised stocks through INR on CoinDCX, which were then converted into stablecoins and routed through foreign exchanges such as Binance, KuCoin and Gate.io to execute the orders. A similar modus operandi was used for trading in tokenised stocks, where the exchange held one-to-one positions on popular decentralised exchange Hyperliquid.
These transactions allegedly occurred through enterprise accounts held by the name of a Costa Rica registered entity on the foreign cryptocurrency exchanges. The agency described the entity as a paper entity allegedly used to circumvent the regulatory framework governing cross-border money transfers. Meanwhile, Delta Exchange India allegedly routed large volume of its derivative and tokenised stock transactions through CoinDCX, the ED said. Previously, in October end, Bengaluru-based RPFAS Technologies Private Limited, which operates crypto investing platform Mudrex and stablecoin payments firm Saber Money were searched by the ED.
The agency alleged that the company advertised instant cross-border transfers using cryptocurrencies, particularly stablecoins such as USDT and USDC, without authorisation from the Reserve Bank of India (RBI). According to the agency, the searches uncovered large over-the-counter transactions, shell entities incorporated in Canada and the United States, and the use of foreign platforms such as Bybit. It also alleged that expenses incurred abroad were paid for using cryptocurrency. "Preliminary findings during the investigation revealed contravention of FEMA through unauthorised cross-border money transfer, unauthorised crypto balances in foreign platforms amounting to more than Rs 4600 crore,"
ED's statement said. Additionally, the ED noted that these fintech products offered prima facie appeared to be contrary to the provisions of the Securities Contracts (Regulation) Act, 1956, the Securities and Exchange Board of India Act, 1992, and the Reserve Bank of India Act, 1934, among other laws. What is Section 37 of FEMA Act? As per the Section 37 of the FEMA Act, under which these investigations were conducted, the ED officers are granted special powers comparable to those of income-tax authorities, subject to the applicable statutory restrictions. The Section 37, however, doesn't grant unlimited powers of search and seizure, leading to no immediate blocking of user funds held by the exchanges.
The precise powers available, and the safeguards and limitations governing their exercise, depend on the relevant statutory provisions and circumstances. What did the companies say? Are user assets at risk? All the four crypto and derivatives platforms CoinDCX, Mudrex, Saber and Delta Exchange named in these searches, have mentioned that the 'user funds remain safe'. A CoinDCX spokesperson acknowledged the ED raids, adding that these were a part of routine equiry at their Bengaluru office, and they have fully cooperated with the authorities with necessary information. "As an entity registered with FIU-IND (Financial Intelligence Unit of India), we regularly assist law enforcement agencies with their inquiries.
We remain committed to the highest standards of governance and are compliant with all applicable Indian laws including FEMA (1999)," the spokesperson noted. We maintain established Know Your Customer (KYC) and Anti-Money Laundering (AML) controls across our platform, while our group entities hold Money Services Business (MSB) licences in relevant international jurisdictions. "We believe our operations comply with applicable laws and regulations and remain available to address any further queries from the authorities," a Mudrex spokesperson said, adding that being FIU-IND registered, it has established Know Your Customer (KYC) and Anti-Money Laundering (AML) controls across the platform, while its group entities hold Money Services Business (MSB) licenses in relevant international jurisdictions.
Delta Exchange said its operations remained unaffected following ED's visit to its premises. "Trading, deposits and withdrawals are functioning normally, with user funds secure in Indian banks". The company said it fully cooperated with officials, is registered with FIU-IND, complies with KYC and AML norms, and does not facilitate cross-border VDA transfers. While ED has traced funds, wallet movements, exchange accounts, counterparties and the legal structure of the transactions, the industry will be awaiting to see if the RBI or SEBI would separately follow-up to examine the products and payment arrangements.