New Delhi: The promoters of two cryptocurrency-based platforms—Mudrex and Instadapp—violated laws governing the transfer of funds in foreign currency, engaging in unauthorised cross-border transactions worth a total of approximately Rs 5,000 crore, the Enforcement Directorate (ED) alleged Thursday. An agency spokesperson pegged Mudrex’s violation of the Foreign Exchange Management Act (FEMA) at Rs 4,600 crore, while crypto-based platform Instadapp was accused of illegal transactions worth $40 million (approx. Rs 381 crore).

Cryptocurrency-based platforms are where digital assets and blockchain technology are used to buy, sell, trade, stake or build decentralised apps.

According to its website, Mudrex has over 3 million active users and is run by Indian Institute of Technology Bombay alumnus Edul Patel, who founded the company and leads the firm as its Chief Executive Officer. Instadapp, on the other hand, is run by two brothers—Samyak and Sowmay Jain.

Offences under FEMA are civil in nature and compoundable with the Reserve Bank of India (RBI), subject to no objection from the Enforcement Directorate. An adjudicating authority—generally a special director-rank officer—examines the materials gathered in the probe and finalises a penalty amount, payment of which may lead to compounding of the offence.

These allegations have been levelled against the new-age companies and their promoters after searches at three premises in Bengaluru and Madhya Pradesh based on complaints and intelligence about alleged large-scale violations by Bengaluru-based RPFAS Technologies, which operates platforms called ‘Mudrex’ and ‘Saber.money’, using cryptocurrencies for unauthorised cross-border transactions and crypto-trading.

ThePrint sent queries to both these platforms via email. While Mudrex responded, a response from Instadapp was still awaited Friday evening.

Mudrex said it fully cooperated with the investigation and provided all documents sought by ED officials during the search proceedings. Additionally, it claimed to be operating in full compliance with the established laws and said it was ready to address all queries from the authorities.

“We will continue to engage constructively with the authorities as the process takes its course,” a representative of Mudrex told ThePrint in their email response.

“Mudrex has operated in India since 2018 and is registered with the Financial Intelligence Unit of India (FIU-IND) as a reporting entity. 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,” they added. “We believe our operations comply with applicable laws and regulations and remain available to address any further queries from the authorities. Our platform continues to operate normally, and user funds remain secure,” it further said.

Also Read: ED attaches Azam Khan’s Jauhar University assets worth Rs 1,170 crore, alleges diversion of public funds

The case against Mudrex

Agency officials said the investigation revealed four major steps of the alleged modus operandi adopted by Mudrex in transferring funds outside India. In the first step, the agency said, the sender of the funds registered on the platform and deposited the money in the company’s bank accounts. The funds were subsequently used to purchase cryptocurrencies, particularly USDT and other stablecoins, which were then sold on Indian crypto exchanges, and the sale proceeds passed on to the prospective receiver.

“Investigation has revealed that the entity which is offering cross-border transfer of money through virtual digital assets (VDAs) is not complying with any regulation mandated by the RBI for inward and outward remittances of funds. Most of these entities are circumventing the official channel by operating through related entities registered in foreign jurisdictions and controlled and operated from India,” the agency spokesman said.

The agency has further alleged that RPFAS Technologies had incorporated shell entities in Canada, Lithuania, and the United States, which, together with foreign cryptocurrency exchanges, were used to illegally transfer funds in violation of RBI norms. Additionally, the agency has alleged that expenses incurred in foreign countries through cryptocurrencies violated FEMA provisions.

“Preliminary findings during the investigation have revealed contravention of FEMA through unauthorised cross-border money transfer, unauthorised crypto balances in foreign platforms amounting to more than Rs 4600 crore,” the agency spokesperson further said.

Instadapp’s global web

Founded in 2018 by Jain brothers, who were on the Forbes 30 Under 30 Asia List in 2022, Instadapp now operates under the name ‘Fluid’. The platform operates on a model that allows users to lend their crypto tokens to earn interest and mortgage them to borrow money, earning revenue from small fees on every loan.

Agency officials pegged the value of crypto held on the platform at more than $1 billion, with total fees of about $149 million so far, citing open-source data.

However, the agency has alleged that while the platform is shown as run by a US-registered company (Instadapp Labs LLC, Delaware), it found that the company shown as the parent entity is a mere paper entity and that the entire development and operations take place in India. Additionally, the agency has alleged that intelligence gathered on their operations shows that the entity had routed its earnings from the Instadapp business to known tax havens such as the British Virgin Islands, Singapore, and the United Arab Emirates, without complying with FEMA provisions.

“Instadapp/Fluid is projected by the founders as a foreign USA-based, decentralised business, but the evidence gathered during the search operations revealed that it is managed from India by Sowmay Jain, one of the founders. The search revealed that the founders were operating a number of paper entities registered in known tax havens, i.e. Instadapp Labs Inc (Delaware), Interop Labs Ltd and Summerspeak Ltd (British Virgin Islands), Upsurge Labs Pte Ltd and Bhindi Labs Pte Ltd (Singapore) and Pebble Labs Technology Ltd (Dubai),” the agency spokesman said.

The agency has claimed that these companies did not exist in physical form and had no employees at their registered offices; the alleged shell entities were instead used as fronts to channel income earned abroad back to India in foreign currency.

In addition to this, the agency has alleged that the promoters had parked revenue from operations and funds received from investors in the form of stablecoins in the wallets of Interop Labs Ltd (BVI), which were also controlled by India-based individuals. These cryptocurrencies were eventually sold on Singaporean crypto exchanges before the proceeds were transferred to group entities—Upsurge Labs Pte and Bhindi Labs Pte—run by Sowmay Jain.

“From these bank accounts, the money was routed to India as remittances for bogus software development and consultancy fees by India-based entities,” the agency spokesperson said. Additionally, the agency also alleged that funds from these Singapore bank accounts were routed to Dubai-based bank accounts of Instadapp founders, the Jain brothers.

This report has been updated with Mudrex’s response to the reporter’s queries

(Edited by Nardeep Singh Dahiya)

Also Read: ED assists FBI with info on Neville Roy Singham, ‘pro-China tech mogul’ linked to NewsClick case