India’s Enforcement Directorate (ED) has taken a giant leap in battling cryptocurrency fraud. Following a high-profile scam linked to the gaming app E-Nuggets, the ED, grappling with the complexities of seizing digital assets, created its own cryptocurrency wallet. This strategic shift allows them to securely manage and control nearly $12 million in crypto assets, previously held in multiple exchanges. With this new tool, the ED is set to revolutionize how they handle crypto crimes, bypassing potential obstacles from uncooperative foreign exchanges and aiming to safeguard and potentially liquidate these assets efficiently.

Officers of the Enforcement Directorate (ED) had little to no indication in 2021 when they started looking into a scammer who had deceived hundreds of people using a gaming app that the case would significantly alter how they would handle similar cases going forward.

The case, which is related to the gaming software E-Nuggets, started with a complaint made by Federal Bank, which was being utilized as a depository bank by con artists who enticed their victims with large quantities of money upfront reports the Print.

According to the ED’s investigation, the funds that were stolen from consumers were transferred to over 2,500 “mule accounts” and used to buy cryptocurrency.

The cryptocurrency that was stashed in many wallets might have been attached by ED officials when they were able to track the money transfer channels. That was a rather easy part to do.

However, the issues that the ED agents encountered in the ensuing phases were unprecedented in the way that Indian law enforcement organizations look into Bitcoin theft.

This article describes how officials came up with the plan to open an ED cryptocurrency account and move the associated cryptocurrencies that were stored in both domestic and foreign exchanges to it.

The Start of an Idea

Under the condition of anonymity, ED officials told ThePrint that during their investigations, a thorough examination of bank accounts connected to E-Nuggets revealed that funds had been sent to businesses that ran cryptocurrency exchanges. This verified that Aamir Khan, whom the agency believed to be the scam’s mastermind, and his accomplices had bought digital assets to evade the law.

All Indian exchanges, including WazirX and CoinDCX, were reportedly asked to assist in locating the source accounts, which resulted in the identification of the Virtual Payment Address (VPA), according to investigators. The procedure took the officials back to bank accounts that the ED had linked to cryptocurrency purchases.

About Rs 90 crore worth of cryptocurrency accounts held with well-known exchanges, such as Dubai-based Binance ZebPay and WazirX in India, were frozen by the ED altogether.

However, officials were concerned that due to the lack of jurisdiction, cryptocurrency exchanges—especially those situated outside of India—might decide not to work with them in the future.

“The crypto accounts were frozen and, both, the money and currencies were of no use to fraudsters but it was of no use to us either. What if the exchanges such as Binance, which is based out of Dubai, refuse to cooperate with us in the future,” an ED official told ThePrint.

“Crypto assets are prone to evaporation and hence we needed it in our own custody albeit in a virtual form,” the official added.

Moving Crypto to ED’s Wallet

This prompted the case’s detectives to open a cryptocurrency account of their own.

Following approval of their request by the agency’s Delhi headquarters, the federal probe agency’s eastern region opened a cryptocurrency wallet account with WazirX. It was selected with the knowledge that, out of all the cryptocurrency exchanges in India, it has the largest user base and the most currency liquidity.

Another significant factor in the choice, according to a second ED official, was WazirX’s Indian basis.

Recently, WazirX made headlines due to a significant breach in its multi-signature wallets that resulted in the loss of around Rs 2,000 crore worth of cryptocurrency in multiple accounts.

Since assistant directors are often in charge of money laundering cases, the wallet was opened under their supervision at the start of 2024. A deputy director-level officer of the agency was given the authority to authenticate the account.

The next step was to move the coins that ED had linked from Binance accounts to its own wallet. Kodex is a network that investigators used that was created to help law enforcement agencies and commercial platforms like Binance communicate with one another.

As to the information provided on its “about” page, Matt Donahue, an employee of the Federal Bureau of Investigation’s (FBI) counterterrorism intelligence wing, developed Kodex in 2021. The platform provides government agencies, law enforcement, and private businesses with Software as a Service (SaaS) for use in court proceedings.

“The confirmation of the provisional attachment order by the Adjudicating Authority formed the basis on which Binance agreed to transfer crypto coins to our own wallet,” said the first ED official.

Any provisional attachment issued by the ED must be approved or denied within 180 days by the ED’s Adjudicating ability, which can approve attachments of assets thought to be the proceeds of crime. The associated properties become the property of the agency upon confirmation by the authority.

“Once there was an order by Adjudicating Authority. We initiated the transfer of assets which was a gradual process and was done incrementally over a period of time,” the first ED official told ThePrint.

The ED will no longer have to worry about non-cooperation in crypto instances, which is a game-changer.

For ED officials, the complications don’t stop here. If they need to sell the coins to raise money, they will need to get permission from the government of Finance, which is their parent government.

Government regulations state that to sell cryptocurrency, one must have a Permanent Account Number (PAN) because the ED, a government entity, does not have a PAN of its own, and the Tax Collected at Source (TCS) is required to conduct Bitcoin transactions must be provided.

Approximately 300 cryptocurrency coins, valued at around Rs 93 crore, are currently in the ED’s wallet.

The ED is currently considering how to release the funds kept in cryptocurrency form, and sources within the organization claim there are only two solutions to this conundrum. The first is asking the Ministry of Finance for permission to sell cryptocurrency without providing a PAN number; the second, which also includes the Ministry of Finance, is requesting from the Income Tax Department a nil TDS certificate.

ThePrint has learned that the agency has not yet decided which of the two routes it will pursue if and when it decides to release its cryptocurrency wallet.

Last month GreatGameInternational reported according to a Bloomberg article that Binance founder and former CEO Changpeng Zhao is now serving his time in Lompoc II as “Inmate 88087-510.”