Uncovering India’s fraudulent schemes
The writer is an Economist based in Islamabad. He can be reached at aneelsalman@gmail.com
Cryptocurrency, an unregulated investment domain, has been flagged by federal regulators and consumer advocates as subject to fraud. It became popular during the pandemic, with investors showing interest in assets. Currently, the industry stands at $2.65 trillion.
It has been four years since FATF adopted a standard on virtual assets (VA) and virtual asset service providers (VASP) as per recommendations 15, R.15. Global implementation of these regulations is relatively very low, and compliance remains behind most other financial sectors. Based on 98 FATF mutual evaluations and follow-up reports since the standards on VAs and VASPs were adopted, three-quarters of jurisdictions are only partially or not compliant with the FATF’s requirements.
India has emerged as the swiftest-growing crypto hub worldwide as it holds the largest share of the global crypto user count. Statista data showed the total number of crypto users reached almost 269.10 million in 2024, expected to reach around 328.80 by 2028 — of which roughly 30% hail from India. Accordingly, revenue coming from cryptocurrency is around $343.50 million in 2024 which will be increasing around $467.20 million by 2028. As per Chainalysis Global Crypto Adoption Index report (2023), India is at the top for adapting cryptocurrency.
With its huge economy, India has a lot of issues regarding human trafficking (India’s National Crime Records Bureau (NCRB) reported over 6,500 human trafficking victims were identified in the country during 2022, 60% of them women and girls); drug users (as per 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 rose 33% due to import duty hike reported by Times of India); NPOs issues; and nuclear-related thefts.
Along with all these issues, VA scams are increasing day by day which leads to money laundering and terrorism financing. VA channels are very common in the circulation of all these crimes. After demonetisation, cash dealings have reduced in India, therefore it can be stated with confidence that either the banking system is being used for the settlement of these predicate crimes or virtual digital assets is the settlement mode in all such crimes.
There has been a surge in cryptocurrency scams in India, leading to significant financial losses for internet users. Over the past few months, many individuals have lost thousands and even lakhs of rupees due to such fraudulent activities. Victims commonly reported being contacted by scammers via social media platforms like WhatsApp or Telegram, where they were enticed with investment prospects.
In 2018, the GainBitcoin Ponzi scheme orchestrated by businessman Amit Bhardwaj defrauded over 8,000 individuals, totalling INR 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 per cent yield. The Morris Coin Scam emerged in 2022, ensnaring over 900 investors with a counterfeit cryptocurrency scheme, amounting to INR 1,200 crore.
The Karnataka Bitcoin Scandal unfolded in 2021, with the Central Crime Branch seizing 31 Bitcoins worth INR 9 crore from a Bengaluru-based hacker. Additionally, STA Token deceived over 20,000 individuals and amassed INR 1,000 crore through fraudulent crypto investments. The State Crime Branch uncovered this nationwide cryptocurrency scam, accusing STA Token of unauthorised money circulation and illegal multi-level marketing activities without approval from the Reserve Bank of India. The Economic Offences Wing confiscated accounts containing suspicious cash deposits exceeding INR 15 crore.
Moreover, significant cryptocurrency scams have surfaced, resulting in substantial losses for the public. The Himachal Pradesh scam, for instance, saw approximately $300 million (INR 2,500 crore) deceiving about 100,000 individuals, including 5,000 government officials and 1,000 police personnel. This highlights a widespread lack of awareness among both the general public and official law enforcement agencies.
The unregulated cryptocurrency environment in India presents a risk of proliferation financing due to the absence of proper regulations and oversight. This risk includes potential money laundering and financing of illegal arms trade, contributing to the proliferation of weapons of mass destruction.
It is imperative for countries to promptly inform regulated entities and regulators about any amendments in the United Nations Security Council-designated lists. India has several queries regarding this matter, including the reasons behind historical delays in notifying regulated entities about amendments in the 1718 committee sanctions list.
Additionally, ensuring the timely issuance of notifications by regulatory authorities and the Financial Intelligence Unit (FIU) following amendments in sanction lists is also inadequate. Furthermore, the availability of a consolidated list on the website of the FIU and regulatory authorities for name screening and matching by regulated entities is crucial for effective compliance and enforcement measures.
Published in The Express Tribune, April 7th, 2024.
Like Opinion & Editorial on Facebook, follow @ETOpEd on Twitter to receive all updates on all our daily pieces.