Digital Currencies and Financial Fraud: How Cyber Laws Are Evolving

Introduction

In today’s digital world, people are using online money more than ever. Digital currencies like Bitcoin and Ethereum are becoming popular. But at the same time, frauds and scams involving these currencies are increasing. To stop this, cyber laws are also changing. This research explains how digital currencies work, what kinds of frauds are happening, and how the law is trying to protect people.

What Are Digital Currencies?

Digital currencies are money in electronic form. They are not physical like coins or notes. The most common types are Cryptocurrencies like Bitcoin, Ethereum. Central Bank Digital Currencies (CBDCs) like India's upcoming Digital Rupee. They use blockchain technology to make transactions fast and secure.

Types of Financial Frauds in Digital Currency:

As digital currencies grow in popularity, criminals are misusing them for illegal activities such as:

1. Ponzi Schemes – Fake investment plans promising high returns.

2. Phishing Scams – Hacker’s trick people into giving their wallet passwords or private keys.

3. Fake Exchanges – Fraud websites or apps that steal money when you try to buy crypto.

4. Ransomware Attacks – Hacker’s lock data and demand cryptocurrency for release.

5. Money Laundering – Criminals use crypto to hide illegal money.

Challenges in Controlling Crypto Frauds:

·       No Central Authority: Most cryptocurrencies are not controlled by governments.

·       Anonymity: It is hard to trace who sent or received the money.

·       Cross-Border Issues: Fraud can happen from any country, making it hard to investigate.

·       Lack of Awareness: Many people don’t know how to use digital currencies safely.

Evolution of Cyber Laws in India:

·       Information Technology Act, 2000: Serves as the primary cyber law statute, while it criminalizes various cyber offences, it lacks explicit provisions concerning digital currencies.

·       RBI Position: The Reserve Bank of India has acknowledged the need for regulation through guidelines and monitoring mechanisms, especially with the pilot launch of the Digital Rupee.

·       Financial Intelligence Unit (FIU-IND): Mandates registration of Virtual Digital Asset (VDA) service providers under the Prevention of Money Laundering Act (PMLA), 2002.

·       Proposed Legislation: The Indian government has introduced drafts for regulating digital currencies, including the Banning of Cryptocurrency and Regulation of Official Digital Currency Bill (yet to be passed).

Globally:

·       FATF Guidelines (Financial Action Task Force): Suggest countries regulate crypto to stop money laundering.

·       USA: SEC and CFTC are regulating exchanges.

·       EU: Working on MiCA (Markets in Crypto-Assets Regulation) to bring uniform laws.

Legal Cases:

1. GainBitcoin Scam (India)

The GainBitcoin scam was one of India’s biggest cryptocurrency frauds, estimated at over Rs. 20,000 crore. It was led by Amit Bhardwaj, who ran a fake Bitcoin investment scheme promising guaranteed returns through Bitcoin mining operations.

Legal Action:

Registered under IPC sections for cheating, criminal breach of trust, and under IT Act provisions. Multiple FIRs were filed across different Indian states. The Enforcement Directorate (ED) also launched a money laundering investigation under the PMLA.

Significance:

This case exposed the vulnerability of investors in unregulated crypto markets and highlighted the need for proper crypto regulations.

2.WazirX Notice (India)

WazirX, a major Indian cryptocurrency exchange, came under investigation by the Enforcement Directorate (ED) for alleged money laundering of over Rs. 2,790 crore. The ED claimed that WazirX facilitated transactions of crypto assets without proper KYC checks, which were misused by Chinese loan app companies.

Legal Action:

The ED issued show-cause notices and later froze assets of WazirX. Investigated under Foreign Exchange Management Act (FEMA) and PMLA.

Significance:

This incident prompted the government to tighten regulations for crypto exchanges in India and demand more compliance with KYC and tax laws.

Suggestions for Stronger Laws:

·       Special law for crypto-related crimes.

·       International cooperation in investigations.

·       Mandatory licensing for crypto exchanges.

·       Stronger awareness programs for users.

Conclusion:

Digital currencies offer a new and modern way to do financial transactions. But they also bring new risks of fraud and crime. Laws in India and around the world are slowly evolving to meet these challenges. A balanced approach is needed to protect users while still encouraging innovation. Cyber law must continue to grow along with technology.

References:

1.Information Technology Act, 2000 (India)

2.Prevention of Money Laundering Act, 2002

3.FATF Guidance on Virtual Assets and VASPs (2023)

4.Markets in Crypto-Assets (MiCA) Regulation – EU (2023)

5.Securities and Exchange Commission (USA) crypto enforcement actions

6.RBI Press Releases and Circulars on Digital Currencies

7.News sources: The Hindu, Economic Times, NDTV (for WazirX case)

DISCLAIMER- This article has been submitted by Pooja Chavan, trainee under the LLL Legal Training Program. The views and opinions expressed in this piece are solely those of the author.