From investment to deception: How crypto frauds are trapping Indian investors

Cryptocurrencies have gained immense popularity in India over the past few years, attracting both legitimate investors and criminals. While digital currencies like Bitcoin, Ethereum, and Tether are often seen as futuristic financial assets, they have also become a tool for illegal activities, including money laundering, tax evasion, and fraud.

With the rapid rise in crypto-related crimes, Indian law enforcement agencies are intensifying their efforts to tackle the growing menace.

Cryptocurrencies are decentralized and operate outside the traditional financial system, making them attractive to criminals. Their anonymous nature allows people to move large sums of money without being easily traced. As a result, money laundering, terror financing, and drug trafficking through crypto channels have become more common in India.

According to a 2024 report by Chainalysis, India ranked among the top countries in terms of crypto adoption but also witnessed a sharp rise in illegal transactions. The report revealed that over $2 billion worth of illicit crypto transactions were detected in the country in 2023 alone.

Money laundering through cryptocurrencies is becoming a major concern for Indian authorities. Here’s how criminals exploit digital currencies:

Converting black money to crypto: Criminals often convert illegally earned cash into cryptocurrency, making it difficult to trace.

Layering through multiple transactions: To conceal the source, launderers send crypto funds through multiple wallets and exchanges.

Use of privacy coins: Privacy-focused cryptocurrencies like Monero and Zcash offer enhanced anonymity, making them a preferred choice for criminals.

Overseas transfers: Funds are frequently moved to foreign crypto exchanges, which makes it harder for Indian authorities to track the flow of money.

Several high-profile crypto crime cases have come to light in recent years, exposing the dark side of digital currency in India.

In May 2024, the Enforcement Directorate (ED) arrested a businessman in Bengaluru for laundering ₹80 crore through crypto transactions. The accused used fake identities to open multiple accounts on foreign crypto exchanges and transferred black money abroad.

In 2023, the Delhi Police uncovered a Rs 100 crore cryptocurrency scam. The accused lured investors by promising high returns on crypto investments but eventually siphoned off the funds using complex blockchain transactions.

In Hyderabad, authorities busted a drug cartel that used crypto payments for online narcotics trade. The group used Bitcoin and Ethereum for transactions and operated through dark web platforms to remain undetected.

Crypto crimes in India are not limited to money laundering. Ponzi schemes and fraudulent investment platforms have also emerged, exploiting people’s lack of awareness.

In 2023, a scam involving GainBitcoin, one of the largest crypto Ponzi schemes in India, made headlines. The scheme duped around 8,000 investors of nearly ₹20,000 crore by promising guaranteed returns on Bitcoin investments. The mastermind, Amit Bhardwaj, used the funds to buy luxury properties and siphoned off the remaining money through overseas exchanges.

Cracking down on crypto crimes presents multiple challenges for Indian law enforcement agencies:

Anonymity and privacy: The anonymous nature of crypto transactions makes it difficult to trace the origin or destination of illicit funds.

Cross-border transactions: Criminals often move crypto funds to international exchanges, which makes it harder for Indian agencies to track them.

Lack of clear regulations: Despite crypto being a growing industry, India still lacks clear regulations governing its use, making enforcement complicated.

Use of Decentralized Exchanges (DEX): Unlike centralized exchanges, DEX platforms do not require users to provide personal information, making it easier for criminals to operate undetected.

To combat the rising tide of crypto crimes, Indian authorities are taking stricter measures:

Stricter KYC norms: The Reserve Bank of India (RBI) and Securities and Exchange Board of India (SEBI) have mandated crypto exchanges to follow strict Know Your Customer (KYC) norms.

Taxation and regulation: In 2022, the government introduced a 30% tax on crypto gains to discourage speculative trading and curb illegal transactions.

Collaboration with global agencies: Indian agencies are collaborating with Interpol and Europol to track cross-border crypto crimes.

Blockchain forensics: Authorities are using blockchain analysis tools to trace illegal crypto transactions. The Enforcement Directorate has ramped up its use of AI-powered forensics to identify suspicious wallet activities.