ED searches Mudrex, Instadapp over alleged FEMA violations involving crypto transfers

The Enforcement Directorate (ED) has conducted searches at four locations in Bengaluru and Madhya Pradesh over alleged violations of the Foreign Exchange Management Act (FEMA) involving unauthorised cross-border transactions through cryptocurrencies and stablecoins.

The searches were carried out by the ED's Bengaluru Zonal Office on October 27 under Section 37 of FEMA, 1999, covering entities operating the Mudrex and Saber.money platforms, along with the decentralised finance (DeFi) protocol Instadapp, which now operates largely under the name Fluid.

The investigation into Bengaluru-based RPFAS Technologies Pvt Ltd, which operates Mudrex and Saber.money, followed complaints alleging large-scale FEMA violations. According to the ED, the platforms were allegedly facilitating cross-border money transfers using stablecoins such as USDT and USDC without authorisation from the Reserve Bank of India (RBI).

The agency's preliminary findings suggest that users deposited funds into the company's bank accounts, which were then used to purchase virtual digital assets (VDAs), particularly stablecoins. These assets were subsequently sold through Indian crypto exchanges, with the proceeds transferred to the intended recipients.

The ED alleged that the company used over-the-counter (OTC) transactions, foreign crypto exchanges such as Binance and Bybit, and overseas entities registered in jurisdictions including Canada, Lithuania and the US to facilitate these transfers. The investigation also found crypto holdings worth more than Rs 4,600 crore on foreign platforms, allegedly in violation of FEMA provisions.

In a separate investigation involving Instadapp, the ED searched three premises, including two in Bengaluru and one in Madhya Pradesh. The agency alleged that the DeFi platform, despite being presented as a US-based business, was managed and operated from India by its founder Sowmay Jain and the development team.

Instadapp, which was launched in 2018 and is now largely known as Fluid, provides blockchain-based services for crypto lending, borrowing and token swaps through smart contracts.

According to the ED, the investigation found that the platform's revenue and investor funds were received in stablecoins through wallets associated with Interop Labs Ltd, a British Virgin Islands-based entity. These wallets were allegedly controlled by individuals based in India.

The stablecoins were subsequently sold through crypto platforms in Singapore, including Independent Reserve and QCP Capital. The proceeds were deposited into Singapore-based group entities and allegedly transferred to India under the guise of software development and consultancy payments. The agency also found that prepaid cards issued by Singapore-based banks were used to meet expenses in India, while some funds were routed to the founders' bank accounts in Dubai.

The ED further alleged that several overseas entities linked to the platform, registered in Delaware, the British Virgin Islands, Singapore and Dubai, lacked physical offices and employees in their respective jurisdictions and were used to route overseas income.

The agency's preliminary investigation has indicated alleged FEMA contraventions of around $40 million in the Instadapp case.

Further investigation into both cases is underway, the ED said.