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Loan Wolves of China | Illegal Lending Apps Rely on A Tangle of Shell Companies, Cryptocurrency to Lie Low

Predatory lending by instant loan apps has led to a spate of suicides in several states. Many of these apps have been traced to China and Hong Kong, and money laundering channels that use cryptocurrencies have been unearthed. Despite the arrest of several players, including Chinese nationals and Indian accomplices, such apps continue to flood the market. They lure desperate individuals into the debt trap and abuse access to their smartphone data to extort exorbitant amounts.

In this series, News18 will shed light on the human cost of the fraud and investigate national security implications of the Chinese harvesting Indians’ data.

A complex web of various fintech companies, registered mainly from January 2020 to 2021 December, is the backbone of illegal loan apps in India. Investigations by various central and state agencies have shown that these companies were registered after ‘recruiting’ Indian directors by Chinese nationals, all came to India on business visas and left within a few weeks when the pandemic hit the country. Those who were stuck in India due to the lockdown left by the end of 2020.

All investigations of state and central agencies reveal that the Chinese were getting back money in the form of cryptocurrency collected and converted by these fintech and shell companies floated by dummy directors appointed by Chinese nationals.

News18 spoke to several senior officers supervising the investigations and found that the companies were registered mainly from three places: Bengaluru, NCR and primarily Gurugram, and Hyderabad. The registrations were done chiefly using the address of a co-working space or from some rented residential apartments in Gurugram or NCR and later shifting base to other cities.

Investigators say that Bengaluru is the primary playground for company registration and call centres, and the recruitment process takes place in Delhi-NCR.

In fact, in some cases, Odisha and Telangana police have found that Chinese nationals put advertisements through various job websites and, after meeting the desired candidates, came to India and recruited a few directors. They funded them initially to open shell companies. Indian directors floated more companies and recruited and appointed more directors by paying amounts of Rs 25,000 to Rs 80,000. Chartered accountants played an important role and got hired, getting Rs 30-50 lakh to help these companies, and most of them were from Delhi-NCR. Later, a few CAs were arrested in different cases registered by Maharashtra, Telangana, and Odisha police.

During the investigation, it was found that these fintech companies were transferring and circulating money through several accounts during weekends so that before any bank or agency could suspect something and act, the money could reach the final account and be converted into cryptocurrency. A few such cases have been identified by Delhi police, which are at their initial stage of the investigation.

According to the investigators, it is hard to say how many companies were floated by these fake directors at the behest of Chinese nationals, but as a well-oiled machine, these fake directors who belong to lower middle class to middle class families, further recruited team leaders to run the call centres, staff to make calls, video editors for editing photos and videos, and located co-working spaces to get the companies registered.

The call centre staff would get email ids and passwords, and they would log in from computers to access the data of victims stored in servers located outside India. No server was located in India, making things difficult for Indian agencies.

The whole system is so complex that except for shutting down an app from application stores, there is no way out and the process has been imitated by the ministry of home affairs, say officials. There is no common agency that is investigating the cases but at least two dozen state and central agencies are working at their level to curb this fraud spread across India, which involves thousands of crores of rupees.

Various fintech companies are under the scanner of central agencies as well as the state police economic offences wings and raids have been conducted at a number of places. One company owns various shell companies that receive money from loan apps by humiliating and extorting innocent people. The money is later converted into cryptocurrency through various exchanges and sent back to China, officials say.

The ED’s latest case, which led to the seizure of Rs 370 crore of assets, started from the villages of Odisha.

“We were getting complaints from various locals who were getting threatening calls. They had downloaded different loan apps and, within a few days, callers were humiliating them. Our officers did an investigation and exposed the whole racket,” JN Pankaj, deputy inspector general (DIG) of police, economic offences wing (EOW) and special task force (STF), Odisha, told News18. “We arrested both the accused Rakshit and Sushant and found that they had recruited several people for illegal lending and recovery. They floated multiple fintech companies linked with a dozen loan apps having call centres in Bengaluru, and Delhi-NCR, operating in various parts of the country. They used to get instructions from their Chinese masters. We intimated central agencies for the required investigation.”

Yellow Tune Technologies Private Limited directors Sushant and Rakshit were recruited by Chinese national Liu Yi, who is absconding.

Both the companies on the Enforcement Directorate (ED) radar are registered from a Bengaluru-based co-working space. The building, which has two storeys in a 300 square yard area, has a sweet shop on the ground floor. The same building shares the registered addresses of more than 1,000 companies, including Yellow Tune and Mudmate Technologies Private Limited.

The ED, which was probing the money laundering angle, found that various cryptocurrency exchanges were used to convert the money.

“Directorate of Enforcement (ED) has conducted searches at various premises of M/s Yellow Tune Technologies Private Limited at Bangalore and has issued a freezing order to freeze its Bank balances, payment gateway balances and Crypto Balances of Flipvolt Crypto-currency exchange totaling to Rs 370 Crore worth of assets. M/s Yellow Tune in laundering the proceeds of crime worth Rs 370 Crore using the crypto route. Therefore, equivalent movable assets to the extent of Rs 367.67 Crore,” the ED said in a statement on August 12.

A News18 investigation found that of the companies that are under the scanner of the ED, from Maharashtra, Odisha, and Telangana, have registered addresses in co-working spaces in Hyderabad and residential apartment complexes in Gurugram. The companies share the same addresses in residential apartments in Gurugram that have different co-directors. Yellow Tunes and Mudmate were registered from a building on 4th Cross Road, HRBR Layout, Kalyan Nagar, Bengaluru.

Interestingly, when News18 contacted an authorised representative of the building named Bricspaces, it was learnt that various companies used loopholes in the system and got registered ‘illegally’ from the office. “We have given a list to the Registrar of Companies of firms (around 1,200) that are illegally using our address,” said the representative.

Similarly, the case that triggered a war between WazirX and Binance after ED seized assets worth Rs 64.67 crore is also linked to these fintech companies that collected money through illegal lending apps and converted it into cryptocurrency, sending it forward to China, say officials.

“Directorate of Enforcement (ED) has conducted searches on one of the Directors of M/s Zanmai Lab Pvt Ltd which owns the popular Crypto-currency exchange WazirX and has issued a freezing order to freeze their Bank balances to the tune of INR 64.67 Crore. ED is conducting a Money Laundering investigation against a number of Indian NBFC companies & their fintech partners for predatory lending practices in violation of the RBI guidelines and by using tele-callers who misuse personal data and use abusive language to extort high interest rates from the loan takers. Various fintech companies backed by Chinese funds could not get NBFC licence from RBI for carrying out lending business. So they devised the MoU route with defunct NBFCs to piggyback on their licence,” the ED said in a statement on August 5. WazirX denied any illegal transactions.

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