Crackdown On Lending Apps: ED Freezes INR 46.67 Cr Parked With Easebuzz, Cashfree, Razorpay, Paytm

Confirming media reports, the Enforcement Directorate on Friday (September 16) said that it conducted multiple raids at banks and fintech startups on Wednesday in connection with a money laundering probe. 

In a public statement, the agency said that an amount totalling INR 46.67 Cr associated with various Chinese lending apps and lying in various bank and virtual accounts was frozen during the crackdown.

The enforcement sleuths said that the probe into the matter was currently underway. 

During the searches, multiple incriminating documents were seized, it said. In addition, the ED also noted that ‘huge balances’ were maintained in the virtual accounts of the accused entities. 

Breakdown of the data related to the amount frozen by ED revealed that:

• INR 33.36 Cr was found lying with Pune-based payment gateway Easebuzz.
• INR 8.21 Cr was found in the Razorpay wallets of the involved entities.
• An amount of INR 1.28 Cr was found in the virtual wallets belonging to Cashfree Payments India.
• INR 1.11 Cr stored with Paytm was also frozen.

The operations were carried out at 22 business and residential premises in major cities such as Delhi, Mumbai, Bengaluru, Hyderabad, Pune, among others. The raids targeted the offices of various banks, payment gateways and other major fintech companies such as Cashfree, Razorpay and Paytm.

The money laundering probe was initiated on the basis of a first information report (FIR) filed under various sections of the Indian penal Code (IPC) by the cyber crime police station in Nagaland’s Kohima.

Meanwhile, the fintech startups under the ED lens have issued a flurry of statements claiming that they are fully compliant with existing regulations.  

Reacting to the development, a Cashfree Payments’ spokesperson said, “We continue to extend our diligent co-operation to the ED operations. We were able to provide the required and necessary information within a few hours on the day of enquiry. The operations and onboarding processes of Cashfree Payments are fully compliant with existing regulations.”

Replying to a query online, fintech major Paytm tweeted, “…As mentioned in our exchange filing, ED instructed us to freeze (a) certain amount from MIDs (merchant IDs) of specific merchant entities and none of these funds belong to Paytm or our group companies.”

RazorPay too has come out with a statement and has denied any wrongdoing, adding that the suspicious accounts have been blocked and their accounts have been frozen.

“With regards to the ongoing investigation against a few suspicious entities who conducted illegal business through multiple payment gateways/banks about 1.5 years ago, we proactively blocked all those suspicious entities and funds associated with them, and have shared their details with authorities. None of the funds which have been directed to be frozen by the authorities belong to Razorpay”, a Razorpay spokesperson told Inc42. 

Razorpay further added, “As mentioned earlier, we will continue to provide necessary information to authorities to assist in this investigation. We would like to reiterate that all our operations and on-boarding processes adhere to the highest standards of governance & regulatory guidelines.”

Easebuzz, which accounted for the largest amount, has claimed that ‘none of the parties mentioned in the ED’s statement belonged to our (the fintech player’s) merchant base.’

Elaborating further, an Easebuzz spokesperson said, “The mentioned entities by authorities were only the counterparties of the merchant, who was using our payment gateway and this merchant had been proactively identified and blocked by us much before the investigation had started, as per our internal risk and compliance process. We intend to fully co-operate with the investigation authorities, as we are committed to ensure that our business operations comply with the existing regulations.”

Digital Lending Scam And The Crypto Angle

At the centre of the probe appears to be an app-based token named HPZ and other Chinese entities involved in digital lending.

Describing the modus operandi of the fraud, ED said that users were lured with the promise of doubling their money through the token. The victims were told that the money would be invested in mining machines for Bitcoin and other cryptocurrencies. 

After receiving the funds, a part of the money was diverted to individual and company accounts of the erring entities and a part was subsequently paid back to the investor.

The money transferred to the accounts would later be syphoned off using digital currencies. Subsequently, the scamsters would stop making payments to the investors and the website would become inaccessible. 

Another facet of the probe involved the much publicised digital lending sharks. Investigation in the probe revealed that the HPZ token was operated by two companies namely Lillion Technocab and Shigoo Technology. In a statement, ED said that the latter was found to have links with various Chinese controlled companies.

Further probe found that a clutch of companies were involved in operating various digital lending apps as well as games and were receiving funds from a number of users for availing these services.

Suspecting frauds, ED looked further into the finances of companies entities such as Jilian Consultants India, Mad-Elephant Network Technology and Su Hui Technology. While Jillian Consultants alongwith X10 Financial Services operated various lending apps (YoYo cash, Tufan Rupees, Coco cash), Su Hui also offered similar services in the country in partnership with Nimisha Finance India.

The digital wallets of all these firms now stand frozen and ED has intensified its investigation into the matter.

This is part of a larger crackdown on major fintech players in the country for flouting money laundering norms and for violating digital lending norms. 

This was the second consecutive round of searches carried out by the agency this month. ED had landed at the doorsteps of six companies including the regulars Paytm, Razorpay and Cashfree Payments on September 3 in connection with the loan apps. The last time around, ED was probing the link between these payment aggregators and loan apps and had seized INR 17 Cr belonging to several loan apps. 

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