Uncovering India’s fraudulent schemes | The Express Tribune

Federal regulators and consumer advocates have noted that cryptocurrencies, an unregulated investment domain, are subject to fraud. It became popular during the pandemic and investors showed interest in the assets. Currently, the industry is worth $2.65 trillion.

It has been four years since the FATF adopted a standard on virtual assets (VA) and virtual asset service providers (VASP) under recommendation 15, R.15. Global implementation of these regulations is relatively very low and compliance remains behind most other financial sectors. According to 98 FATF mutual evaluations and monitoring reports since the VA and VASP standards were adopted, three-quarters of jurisdictions are only partially compliant or not compliant with FATF requirements.

India has become the fastest growing crypto hub worldwide as it holds the largest share of the global number of crypto users. Data from Statista showed that the total number of cryptocurrency users reached almost 269.10 million in 2024, and is expected to reach around 328.80 in 2028, of which approximately 30% come from India. Consequently, revenue from cryptocurrencies will be around $343.50 million in 2024, which will increase to around $467.20 million by 2028. According to the Chainalysis Global Cryptocurrency Adoption Index report (2023), India will is at the forefront in the adaptation of cryptocurrencies.

With its huge economy, India has many problems related to human trafficking (India's National Crime Records Bureau (NCRB) reported that more than 6,500 victims of human trafficking were identified in the country during 2022, 60% of them women and girls); drug users (according to the NIH report, 62.5 million people use alcohol, 8.75 million use cannabis, two million use opiates, and 0.6 million use sedatives or hypnotics) and drug smuggling; gold smuggling (gold smuggling in India increased by 33% due to increase in import duties reported by Indian Times); NPO issues; and theft related to nuclear energy.

Along with all these problems, VA scams are increasing day by day, leading to money laundering and terrorist financing. VA channels are very common in the circulation of all these crimes. Post demonetisation, cash transactions have reduced in India, so it can be confidently stated that either the banking system is being used for the resolution of these predicate crimes or virtual digital assets are the mode of resolution. in all these crimes.

There has been a rise in cryptocurrency scams in India, resulting in significant financial losses for internet users. In the last few months, many people have lost thousands and even thousands of rupees due to such fraudulent activities. Victims commonly reported being contacted by scammers through social media platforms such as WhatsApp or Telegram, where they were lured with investment prospects.

In 2018, the GainBitcoin Ponzi scheme orchestrated by businessman Amit Bhardwaj defrauded over 8,000 people, totaling Rs 2,000 crore. Bhardwaj lured investors with promises of high returns through a multi-level marketing scam, offering an 18-month contract with a guaranteed 10 percent return. The Morris Coin scam emerged in 2022 and trapped over 900 investors with a counterfeit cryptocurrency scheme, worth INR 1,200 crore.

The Karnataka Bitcoin scandal unfolded in 2021, when the Central Crime Branch seized 31 Bitcoins worth Rs 9 crore from a Bengaluru-based hacker. Furthermore, STA Token duped more than 20,000 people and accumulated INR 1,000 crore through fraudulent crypto investments. The State Crime Branch uncovered this nationwide cryptocurrency scam, accusing STA Token of unauthorized money circulation and illegal multi-level marketing activities without the approval of the Reserve Bank of India. The Economic Crimes Department seized accounts containing suspicious cash deposits exceeding Rs 15 million.

Additionally, major cryptocurrency scams have emerged, resulting in substantial losses to the public. In the Himachal Pradesh scam, for example, around $300 million (Rs 2.5 billion) was cheated from around 100,000 people, including 5,000 government officials and 1,000 police officers. This highlights a widespread lack of awareness among both the general public and official law enforcement agencies.

The unregulated cryptocurrency environment in India poses a proliferation financing risk due to the absence of proper regulations and oversight. This risk includes potential money laundering and financing of the illegal arms trade, which contributes to the proliferation of weapons of mass destruction.

It is imperative that countries promptly inform regulated entities and regulators of any changes to the lists designated by the United Nations Security Council. India has several questions on this matter, including the reasons behind historical delays in notifying regulated entities about amendments to the 1718 committee sanctions list.

Furthermore, ensuring timely issuance of notifications by regulatory authorities and the Financial Intelligence Unit (FIU) following amendments to sanctions lists is also inadequate. Furthermore, the availability of a consolidated list on the website of the FIU and regulatory authorities for research and comparison of names by regulated entities is crucial for effective compliance and enforcement measures.

Published in The Express Tribune, April 7th2024.

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