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India Struggles to Curb Rising Crypto Frauds, Victims Left in a Legal Abyss Amid Regulatory Ambiguity

Jai Pratap
Last updated: | 4 min read
Source: Pexels

India is currently witnessing an alarming surge in cryptocurrency-related frauds, leaving investors in despair and criminals largely unchecked. 

The absence of clear regulations in the cryptocurrency space can largely be attributed to the encouragement of these illicit activities. 

In a conversation with CryptoNews, Gaurav Mehta, a forensic expert who provides consultancy services to the Indian law enforcement agencies in investigating crypto-related crimes and the co-founder of Catax, shed some light on the challenges faced by India’s cryptocurrency ecosystem and the quest for solutions.

Regulatory Void: A Breeding Ground for Crypto Frauds

India is among the top countries in the world when it comes to crypto adoption. This is despite the lack of clear regulations and heavy tax policies on crypto gains. 

When discussing the lack of clear regulations in India, Gaurav Mehta explained how this regulatory ambiguity provides a fertile ground for criminals. 

“The absence of regulation further emboldens criminals, as the existing justice system and law enforcement agencies lack the focus, capacity, and competency to combat crypto-related crimes. This regulatory void leaves victims in a state of helplessness.”

Earlier in July,  the Supreme Court of India questioned the Solicitor General on the competency of law enforcement agencies to investigate such crimes. Mehta explained, “The Supreme Court inquired about the competence of existing law enforcement entities in handling such cases. The court asked the Solicitor General which existing law enforcement infrastructure is capable of handling such cases because what we have seen is that justice has not prevailed as there are a lot of applications pending in the Supreme Court.”

The highest level court of India emphasized the need for clarity regarding which department and officials would address these issues.

Reporting Crypto Frauds and Lack of Precedent 

Reporting crypto frauds in India has proven to be an arduous journey for victims. 

Gaurav highlighted the challenges faced by those seeking justice, stating:

“The lack of clarity on whether these cases fall under the purview of cybercrime or economic offenses, coupled with the absence of regulatory guidelines, has led to hesitation among law enforcement agencies. Victims often find their complaints going unregistered, and sometimes they face mistreatment.”

He further noted that the fear of legal consequences prevents some victims from coming forward. “Many cases involve elements of illegality, such as sourcing cryptocurrency through unregistered exchanges or unreported transactions. This fear acts as a deterrent for victims, creating a conducive environment for criminals,” Mehta explained.

“The current ground situation is really worse, but when you look at the higher level, the law enforcement agencies themselves do not have a clarity on how to go about these complaints, they do not have a competency, they do not have tools and technologies and also the due process has not been established yet.”

Gaurav further pointed out that there has not been a single benchmark case that can act as a precedent for other cases.

“We are yet to see a landmark case where clear guidelines have been justified, how the evidence is going to look like and what is acceptable, what is not acceptable.” 

A Glimpse of Hope: Crypto Intelligence Analysis Tool

Recent developments have shown promise in India’s fight against crypto-related crimes. Garuav welcomed the introduction of a crypto intelligence analysis tool by the Home Ministry, designed to monitor crypto transactions on the darknet. 

He expressed optimism, stating, ‘This marks a significant step, as India had previously relied on international tools for investigations. The tool is crucial for combating drug abuse and other illicit activities associated with cryptocurrencies.’

A Slow Path to Convictions

Regarding convictions in crypto fraud cases, Mehta emphasized the challenges tied to the absence of clear regulations. He explained, “The lack of clarity on whether cryptocurrencies are assets, commodities, or currencies complicates legal proceedings. Crypto-related crimes involve sophisticated methods, making it difficult for law enforcement agencies, prosecutors, and courts to understand and convict.”

He also discussed the ongoing GainBitcoin case, a massive cryptocurrency fraud that is estimated to have ballooned up to $10 billion and has more than 60,000 victims.

“This case is India’s largest crypto scam, and it has taken years to build evidence and momentum. The government has now identified exciting leads, and we expect significant developments soon.” 

India Gains Reputation as Hub for Financial Frauds 

Even outside of crypto, India has gained a reputation for massive financial frauds where victims are targeted in other countries as well. A recent survey by LocalCircles showed that 39% of Indian families have been duped in some sort of financial fraud in the last 3 years. Only one-fourth of the families involved were able to get back their funds.

According to recent revelations made by the Finance Ministry during a briefing to the Parliamentary Committee, India has witnessed an alarming 65% surge in financial fraud cases in 2022, in comparison to the figures from the previous year, as reported by The Hindu BusinessLine (BL).

The Finance Ministry also highlighted four distinct trends in cybercrimes currently plaguing the nation. These trends encompass the illicit utilization of cryptocurrencies for money laundering and terror financing, the widespread use of mule accounts featuring fabricated addresses, the involvement of international online betting platforms in money laundering and terror financing, and the exploitation of lending apps and investment apps for fraudulent purposes.

A Cautionary Tale for Crypto Investors

In conclusion, Mehta offered advice to crypto investors. “Don’t let greed cloud your judgment,” he cautioned. “High-risk, high-return opportunities often lead to scams. If an investment promises unrealistically high returns, exercise caution. Instead of focusing on external factors, introspect and evaluate your own desires and expectations.”

While India grapples with regulatory challenges and the threat of crypto frauds, there is hope on the horizon. The country’s efforts, along with global cooperation, could pave the way for a safer and more secure crypto environment in the future.