The UK has seen an 116% rise in reports of cryptocurrency fraud in the twelve months to 30 June 2021, research by law firm Pinsent Masons found.
Cases rose to 8,614 from 3,983 in the previous period.
The law firm said this is the fourth consecutive year in which crypto fraud reports increased by more than 100%.
As the asset class gathers momentum and popularity among retail clients, so do attempts from fraudsters to take advantage of inexperienced investors, especially through ‘get rich quick’ schemes.
Pinsent Masons said that there is a concern vulnerable investors make up a “disproportionately large” percentage of the victims.
The police is already at full capacity as the number of reports surge, leaving investors to turn to courts to pursue fraudsters via the crypto exchanges that they use to “both launder and realise their gains”, the law firm found.
Leverage the blockchain tech
One of the ways victims can go on about this is via asset freezing orders, which can make exchanges freeze a crypto wallet and provide Know Your Customer (KYC) information on its owner.
Hinesh Shah, senior associate forensic accountant and financial crime investigator at Pinsent Masons, said: “This rising tide of cryptocurrency fraud shows no sign of peaking. The police are now swamped with reports and cannot place adequate resources on these investigations.
“However, the UK civil courts can be used to track down crypto fraudsters and get stolen funds reclaimed. There is a misconception that cryptocurrencies cannot be traced, but the point of blockchain technology is transparency: transactions on the blockchain are traceable.
“Fraudsters can try and make the job more difficult by transferring small amounts of cryptocurrencies to many different wallets, or utilising mixers to try and disguise their ill-gotten gains. However, legitimate crypto institutions, that want to stay on the right side of regulators and enforcement agencies, will cooperate with a UK court order and freeze the stolen assets.”
Large lawsuits
The law firm said that it expects victims to group together to pursue class actions either against the fraudsters or the financial institutions that enabled the criminal activity.
Jennifer Craven, senior associate and civil fraud and asset recovery specialist at Pinsent Masons, added: “Civil claims offer a valid route for victims to get their money.
“The perception that there is nothing a victim can do to pursue crypto fraudsters is far from accurate. However, pursuing a civil claim is not cheap and if you have been defrauded of one or two thousand pounds the economics wouldn’t stack up.
“That’s why we are hopeful that more class actions will get off the ground allowing a group of victims with limited resources to club together to pursue these cases.”
Watchdogs could step in
Shah believes that regulators are likely to put more pressure on crypto exchanges and brokers, which is likely to make them comply quicker with court and asset freezing orders.
Craven added: “At a minimum, regulators are going to expect cryptocurrency institutions to conduct proper KYC procedures and to implement robust anti-money laundering controls and to cooperate fully with anti-fraud investigations.
“Flout those rules and those regulators that have little issues with operating across borders like the US Treasury may impose sanctions on you. With the Financial Conduct Authority increasingly focused on the protection of vulnerable customers we anticipate more robust regulatory action to help stem the rise in this type of fraud.
“The FCA is already looking at innovative tactics such as using social media influencers to warn of the risk of fraud in this area.”
