On December 8, 2017, a unique cryptocurrency exchange fraud was uncovered by local police in Uttar Pradesh, India. The Uttar Pradesh Special Task Force (STF) was quick to act and arrested the mastermind, Mohd Azhad, in Lucknow. The discovery in Uttar Pradesh is the first large-scale cryptocurrency scam in the country.
The fraudulent operation was exposed after Pankaj Garg, a businessman based in the Indian state of Haryana, reported this behavior to the Uttar Pradesh STF. At the time of writing, it is not clear how many other victims fell prey to this scam or the number of people that were involved in it.
The con artists reportedly created multiple accounts on cryptocurrency exchange websites and offered to sell bitcoin in exchange for money sent via a bank transfer. As a show of trust and goodwill, they even completed small legitimate transactions. However, when buyers placed larger orders, the fraudsters would ask for the money upfront and then not send them any bitcoin. Tracking the perpetrators of this racket through their bank accounts was not an option since forged identities were used for the opening of those accounts.
News of this fraudulent activity comes at a rather unfortunate time for the cryptocurrency ecosystem in India, which is one of the very few countries that is yet to take a firm stance on the subject. Given that the Indian government is more apprehensive about bitcoin than it has ever been, even isolated stories such as these may negatively skew lawmaker and public perceptions of virtual currencies.
In the past, India’s central bank, Reserve Bank of India (RBI), has made several cautionary announcements advising against the use of virtual currencies. In a press release released in December 2013, the RBI emphasized that cryptocurrencies pose potential “financial, operational, legal, customer protection, and security” risks. Since then, the RBI has released several warnings of similar nature, with the most recent advisory issued on December 5, 2017.
With several new Initial Coin Offerings (ICOs) and virtual currencies flooding the market in recent years, the RBI also stressed that it had not issued licenses or authorizations to any company in the cryptocurrency sphere. The central bank’s stance is a pretty clear indication of the fact that if one is to deal with digital currencies in India, they will have to do so at their own peril.
It is no secret that the digital currency market is riddled with predatory ventures explicitly designed to take advantage of the ignorant. In an attempt to combat this, governments around the world have adopted different methods to curtail such scams.
Earlier in 2017, the U.S. Securities and Exchange Commission announced that they were keeping a close eye on the market for potential fraudulent behavior. On the other hand, in September of 2017, China announced a blanket ban on ICOs and forced all virtual currency exchanges in the country to cease operations effective immediately.
Once a world leader in the cryptocurrency world, especially with regards to mining and trading, China has since lost that title to other countries, such as Japan, and most notably South Korea; home to the world’s most traded cryptocurrency exchange by volume, Bithumb. It remains to be seen whether India will follow suit and issue a ban on digital currencies or simply continue to detach itself from them.