Hot on Octafx money trail, Enforcement Directorate taps Spain for support

In what could be long and arduous chase, the Enforcement Directorate (ED) is trying to seek Spain support in investigating Octafx, the shadowy international forex betting empire whose maze of operations has stunned the Indian authorities: owned by a Russian (one Pavel Prozorov), Oxtafx has its servers in Barcelona, tech support team in Georgia, the parent head-office in Cyprus, banking links in Singapore, and marketing outfits in Estonia and British Virgin Islands, according to information gathered by the central agency.

In the course of the probe, ED found out that Octafx, which raked in profits of about Rs 800 crore from India in just nine months in 2022-23, had used some of the alternative investment funds (AIFs) regulated by the Securities and Exchange Board of India (SEBI) to launder money, sources told ET. AIF is the regulatory term for pooled investment vehicles like private equity and venture capital funds.

Octafx, which has been blacklisted (along with other smaller foreign exchange trading apps) by Reserve Bank of India, had sponsored an IPL team and hired soap stars and social media influencers to popularise the app and pull off a trading racket that allegedly stacked the odds heavily against unsuspecting traders.

Opposite trades
According to ED’s findings, once a trader placed a `buy’ order, the broker countered it with a ‘sell’ order, causing the particular exchange rate to fall. This forced the gambler to close the position to avoid further loss and enabled the broker to book a profit. Thanks to absurdly high leverage of 1:100 or even 1:500 offered on the Octafx app, indicating the ratio of the margin money chipped in by traders and the extent of borrowed funds, panicked traders exited when the rates moved against them. ED suspects that clients’ funds were not credited to any trading account in the international market.

“These offshore platforms,” said Jay Sayta, a technology and gaming lawyer, “do not comply with any laws of India and are said to have indulged in several dishonest and unethical practices including illegal transfer of funds received from the users on these platforms to the schemes’ ultimate beneficiaries and kingpins who are located abroad. The modus operandi in collecting funds from the public through mule accounts and remitting profits abroad through hawala, cryptocurrencies or fake import invoices is not very dissimilar to illegal offshore betting platforms.” Indeed, money collected was allegedly transferred to Singapore as payment against “fake import of services”.

“However, as we have seen in other cases as well, making the kingpins face the consequences of the laws of the land in India and getting evidence about such crimes from foreign authorities and/or courts is an extremely lengthy, complicated and time-consuming process. It will require persistent efforts on part of the authorities to ensure that the key people are brought to book and the case is not closed with action against low-level operatives,” said Sayta.

From generous promotional expenses to collecting and remitting funds --- a slice of which (over Rs 17 crore) came back as foreign direct investment in the local entity Octafx India --- the group took various measures to cover its tracks. According to ED, Octafx hired retired bankers to train staff to handle queries from law enforcement agencies and traders, ran the Indian operations from Dubai, hired Indians abroad to build trust, incentivised traders with gifts and make them act as “introducing brokers”, frequently changed local bank accounts and as more traders were allured to the platform, it increased the minimum cash deposit amount.

Here's what official Statement from Octa read, "On September 27, an Octa spokesperson issued a statement denying allegations of the group’s involvement in betting and money laundering and said such allegations are unreliable and damage its reputation built over the years with clients, partners, and stakeholders over the years. “As a CFD (Contract for Difference) derivative broker, we function as an intermediary between financial markets and traders, enabling them to trade various assets safely and securely. The derivative market is one of the largest and most liquid global financial markets, and CFDs are widely used by major financial institutions, banks, and investment firms to trade currencies and other financial instruments. The transactions’ security and the wide spread of CFD trading are ensured by core principles of trading—specifically, brokers cannot affect the trading process, including charts and quotes distribution for clients: each trade is executed fairly and independently."

"Contrary to the allegations made, we strictly adhere to global anti-money laundering (AML) best practices, including ongoing monitoring of our traders’ activity, and enforce adequate due diligence measures to detect any suspicious actions and transactions. Furthermore, as a law-abiding company, we cooperate with local authorities upon receipt of the duly executed requests and its legitimate justification. Octa is by all means dedicated to keeping the trading environment fair and secure so that we can do everything in our power to combat money laundering and terrorism financing," it further added.

"Although we collaborate with our payment providers, it’s important to highlight that we do not influence their work, and are not involved in their interaction with our clients, which means that we are not responsible for how they conduct their business. Octa has never been affiliated with any of the betting companies, including those mentioned in the allegations," said the company.

It addition, it said, "It is important to clarify that according to the local laws in the countries of our registration, information about controlling and ownership is not publicly available due to the privacy regulations in force. As a trusted and law-abiding international company with globally recognised licenses, we are determined to counter slander and unfounded accusations that damage our hard-earned reputation, using all available means, including the company’s legal rights protection. The Octa team remains committed to delivering safe, stable trading conditions and seamless payment processing for all our traders.”

Founded in 2011, Octafx offered trading in commodities and cryptos besides forex. In India, it had its first brush with the law in December 2021 when an FIR was registered by Pune police. A charge-sheet was filed in March 2022 for violation of the Indian Penal Code following which a case was recorded in December 2022 under PMLA. After ED conducted a search, Octafx India changed its name to Tauga Private Limited.