CID study reveals rise in crypto scams in India

The Center for Cybercrime Investigation Training and Research, an arm of the CID Police in Karnataka, India, has released a new report citing a lack of regulation for the rise in crypto scams across the country. The report, ‘Study on the Use of Money Mules in Cyber Crimes’, mentioned it as one of the contributing factors.

The study, which was unveiled at a conference of senior police officers, revealed that the combination of the unregulated cryptocurrency market and the acceptance of digital assets as deposits on gaming platforms and casinos has contributed to this menace. These platforms make these assets hard to track and recover, the study added.

According to data from the National Cyber Crime Reporting Portal (NCRP) for 2024, the study claimed that about Rs. 2,915 crore ($349 million) was lost to cyber crimes in Karnataka. The losses were said to have grown fourfold from Rs. 660 crore ($79.2 million).

CID study reveals rise in crypto scams in India

The study also discussed the subject of money mules who knowingly or unknowingly move money for criminals using their bank accounts. Using their accounts, the criminals can launder or layer stolen money from millions of innocent victims through several illicit activities like investment frauds and ransomware, leading to the eventual transfer of these illegal funds to the operators of the cybercrime networks using crypto or cash withdrawals.

“The unregulated cryptocurrency market is exacerbating the issue of money mulling. Recent cases have revealed that laundered money is either converted into cryptocurrency using a money mule or transacted through P2P transactions with genuine crypto traders,” says the report authored by cybercrime police experts and the Data Security Council of India.

According to the study, the laundering of cybercrime proceeds through crypto is further complicated by platforms like online casinos that allow users to deposit in crypto. Most of these platforms have little to no KYC requirements or are based in foreign countries where the regulatory frameworks for KYC are lenient. The study clarified that these aspects pose serious challenges to investigators.

The study also identified the tracking of the conversion of stolen funds as a challenge for law enforcement. Aside from cash withdrawals using Indian debit cards at ATMs in countries like Dubai, Hong Kong, and Bangkok, the criminals use ATMs in remote areas across India, making these conversions a major challenge. “In many instances, illicit funds are converted into cryptocurrency through peer-to-peer (P2P) transfers on unregistered platforms and exchanges) changes),” the study said.

Banks are refusing to flag suspicious transactions

While the RBI has mandated the generation of ‘Suspicious Transaction Reports’ to the centralized Financial Intelligence Unit India, with warnings against non-compliance as part of efforts to reduce cybercrime, banks have not been complying with the law. “Investigations have revealed that banks sometimes fail to flag transactions as suspicious when large volumes occur. This failure is often attributed to negligence on the part of the banks, and in some rare cases, insiders in the bank colluding,” the report said.

Banks have also been accused of allowing users to easily change the registered phone numbers linked to their accounts, highlighting that “genuine accounts are sold to fraudsters who then link their phone numbers, enabling control over internet banking” even if their new mobile number does not match the one that has been registered with the licensed agency.

“Despite the RBI mandates for strict due diligence on mobile number changes, this is not uniformly enforced across banks,” says the study. The study has pointed out that the RBI also created an in-house artificial intelligence/machine learning-based solution called Mulehunter.AI to detect suspected mule accounts. In terms of legal provisions, the absence of measures against money mules in the existing laws in the country has been a hindrance to regulating cybercrime in India.

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