Millions lost in crypto scams in the first half of 2021; How to safeguard yourself

  • 5 months   ago
Millions lost in crypto scams in the first half of 2021; How to safeguard yourself

These scams cover different criminal aspects, such as Ponzi schemes and false representation, etc.

There have been a few hundred cases of crypto scams where people in Dubai have lost Dh80 million in the first half 2021 and cases have been transferred to courts, said Tarek Mohammed, Head of the Digital Assets Crime Section at the Dubai Police GHQ.

He said these scams cover different kinds of criminal aspects, such as Ponzi schemes and false representation, etc.

“When we tell this number to people, they say is it really possible that Dh80 million was lost in the first half 2021? We need to safeguard ourselves...So always, always, always do due diligence with whom you deal with and work with. This is very important. There are great public resources on the Ministry of Economy website where you can have such information,” said Mohammed.

While speaking at a virtual session on “Mistakes to avoid when investing in crypto assets”, he said the Dubai Police are not reactive but rather proactive.

The Digital Assets Crime Section has been created this year by the Chief of Dubai Police Lt-Gen Abdullah Al Marri as a proactive approach due to the rising crime happening around crypto matters. A webinar was organised by the Dubai Police University Student Council as part of this public awareness initiative.

The Dubai Police currently use anti-money laundering laws issued in 2018 to deal with such virtual asset scams. In addition, a set of Financial Action Task Force (FATF) guidelines is in place to deal with such issues, he added.

How to safeguard yourself

Mohammed said some laws would be coming in very soon, laying down clear guidelines on this sector.

He said independent free zones, such as Abu Dhabi Global Markets and DMCC etc., have come up with certain preliminary guides that allow regulations for certain companies to operate. But companies outside such free zones are not regulated to conduct these virtual asset business.

“A lot of companies unfortunately get licence as a payment service provider or as a commercial broker from a legal perspective. But that doesn’t allow them to trade in crypto currencies... We have unfortunately seen the cases where people said they saw this company is licensed. But in the end it’s not,” he said, adding that a lot of companies or individuals operate overseas. Hence, it becomes a challenge to pursue such cases because the company is licensed in the third country – outside the UAE’s jurisdiction.

“It takes time for us to proceed against these cases.”


Due diligence

Mohammed strongly advised investors in the UAE to do due diligence before making any decisions.

“There is no harm in asking companies and people to provide them with a copy of trade licence because it’s a public information and not confidential. Also make sure the license is not photoshopped because there have been some cases of documents being photoshopped,” he said.

He warned that there are "wonderful" stories of people becoming millionaires by investing in cryptos. “But these are stories. Probably investing in Bitcoin might give you good return but there other alternatives that can give good return, too. Follow your passion. You don’t necessarily have to follow the crowd. You can monetise your strengths and skills to make money. Bitcoin is not your ticket to retirement,” Mohammed said during the webinar.

Mohammed also warned against those people who ask for peer-to-peer transactions because that could violate the UAE’s anti-money laundering laws.

“There are always dodgy people providing such services, please stay away from them. We have had multiple cases on a daily basis where people say 'we found this guy on Instagram and Facebook and he put his pictures of driving Rolls-Royce'. There is no documentation in this kind of transaction and this put people at risk.”

He said people also promise to send money directly to their bank account but the recipients have no clue about the source of these funds.

“Money going into your account might have come from criminal proceeds so you’re indirectly becoming complicit to the crime. We have seen a lot of cases. You need to be aware of such matters and this is very important.”

Nevertheless, he advised people investing in crypto not to put more money than they can afford to lose. “Also, don’t take a bank loan and sell your cars. If your cash is in crypto, consider it fun money.”

Firms selling realty against cryptos not authorised

Mohammed said any company which accepts payments in cryptos is not doing so with the authorisation of the UAE government.

Recently, some local real estate companies announced that they were willing to sell their properties to investors against cryptos.

“Fundamentally, real estate companies in the UAE have to deal with the UAE dirham because they are licensed within the jurisdiction of UAE. The fee they pay will have to be the currency of the country,” he added.

'I lost millions through cryptocurrency addiction'

Jake first bought Bitcoin - the most popular cryptocurrency - in 2015, but it was not until a big win a few years later that his trading spiralled out of control.

"I can pinpoint the exact moment it became a problem," he said. "I had been eroding the sum I put aside, but I entered a trade, and I was willing to risk that last amount I had.

"I ended up making back pretty much everything I lost in a single trade. The feeling was one of absolute euphoria."

Jake told BBC Scotland's The Nine that this high, coupled with difficulties in his marriage and personal life, quickly led to an addictive cycle.

His job at that time meant he was in charge of millions of pounds. He said that he soon took to trading money that was not his in the hope of repeating his first success.

He said: "The first time I took it, I lost it all in about 20 minutes one night. The market moved very rapidly and I liquidated everything.

"It was about 2am. I went back to bed and had to lie down next to my wife. She had no idea what I had been up to."

Jake had been facing criminal charges for embezzlement but was able to pay back £1.5m to his employer with the help of his family and is now in treatment for his addiction.

What is cryptocurrency?

Cryptocurrencies are digital money that is not issued by a bank. You can trade and invest these currencies like any other - and there are virtually no barriers to entry. The absence of regulation means the market can go up incredibly fast.

During the lockdown, the total value of all cryptocurrencies increased from about £175bn to more than £1.75tn.

Figures from the UK's financial watchdog show that hundreds of thousands of people in the UK hold these digital currencies.

But since the start of May, the market reached its highest-ever level and lost more than £1tn just a few weeks later.

With something this volatile, when you win, you win big. When you lose, you hit rock bottom.

Fake Elon Musk giveaway featured in cryptocurrency scams-U.S. FTC

Fake promised giveaways by celebrities such as Telsa CEO Elon Musk are being used by scammers to cash in on interest in cryptocurrencies, the U.S. Federal Trade Commission said on Monday in noting a jump in complaints about cryptocurrency fraud since October.

In one type of scam, people are told that if they give a certain amount of cryptocurrency to a "celebrity" they will get more back.

"People have reported sending more than $2 million in cryptocurrency to Elon Musk impersonators over just the past six months," the FTC said.

Musk had been a supporter of cryptocurrencies but recently knocked dogecoin by calling it "a hustle" on national television. He has also recently said that bitcoin would not be accepted to buy a Tesla because of the environmental costs associated with mining it.

Scammers also impersonate government authorities or a potential romantic partner, the FTC said.

Overall, nearly 7,000 people reported losses of more than $80 million since October, with a median loss of $1,900, the agency said. That's twelve times more reports of scams than the same period a year earlier, the agency said.

People in their 20s and 30s were the biggest victims, reporting losing much more money on investment and cryptocurrency fraud than any other type of scam.

Older people, over 50, were less likely to report falling for the scams but when they did the losses were bigger, with a median loss of $3,250.