Scammers cashing in on crypto mania

The sheer number of novice investors being tempted by the potentially high rewards of the crypto market is creating similarly lucrative opportunities for scammers


Santander bank, Central London

Such is the allure of cryptocurrencies that investors are acting in ill-judged haste, hoping to make a fast buck. According to the UK’s fraud reporting service, Action Fraud, British investors lost £113m to crypto scammers last year, up from £77m in 2019.

During the six months to May 2021 – a particularly frenetic period in an already febrile global crypto market – fraudsters impersonating Elon Musk are thought to have pocketed more than $2m. Other scams have used dating websites to entice unwary victims through the false promise of romance. The long-distance new love mentions a ‘good’ crypto investment opportunity and their lovesick mark parts with their cash.

Fraudsters typically create credible-looking online ads and websites and send professional-sounding emails to advertise sham investment opportunities. Fake testimonials are often accompanied by a picture of a well-known and trusted public figure to lend legitimacy.

Cryptocurrency exchanges, many of which remain unregulated but offer an important platform for buying and trading digital assets, are particularly susceptible to scams. Criminals have manipulated trading volumes on seemingly reputable exchanges to tempt potential investors and fleece them of their funds. Some have even set up fake crypto exchanges. These may harass users, deny crypto withdrawals, charge exorbitant fees or simply take the entire investment.

Many of the crypto scams flooding the market promise to double a customer’s returns or offer giveaways in the currency

Susannah Streeter, senior investment and markets analyst at FTSE-100 financial services company Hargreaves Lansdown, notes that the scale of crypto fraud in the UK has become clear from the latest figures from the Advertising Standards Authority. These show that about 95% of all scam alerts currently received by the watchdog relate to bitcoin.

“Many of the crypto scams flooding the market promise to double a customer’s returns or offer giveaways in the currency, often featuring the profile of celebrities on their ads,” Streeter says. “The only people to get rich quick from these kinds of schemes are the scammers themselves.”

The simplest way to avoid becoming a victim is to bear in mind that if anyone is offering fast returns without risk, they’re scammers. If it sounds too good to be true, it definitely is.

Countering the fraudsters

The Advertising Standards Authority is considering reforms to its financial advertising remit to include cryptocurrency as one of its priority areas, which may necessitate new powers. 

The Financial Conduct Authority (FCA) has stressed that there’s a limit to what it can do to crack down on online scams that are currently beyond its regulatory scope. Since January, it has required all firms offering crypto-related services to register and demonstrate their compliance with anti-money-laundering rules and other safeguards. But it recently revealed that only five firms have registered so far, most of which are not yet compliant.

Video-sharing social network TikTok has banned paid-for content for financial services promotions, as it’s clearly concerned about the number of users being duped into putting money into bogus investment schemes.

There were hopes that the government’s new online safety bill would be widened to cover internet scams, but at present it does not include fraudulent advertising, which means that scammers will continue to slip through the legal net.

One of the most notorious fake cryptocurrency exchanges was BitKRX, unmasked by South Korean authorities in 2017. It was named to appear like the cryptocurrency arm of the country’s largest legitimate financial trading platform, Korea Exchange (KRX). When clients who thought they had purchased bitcoin tried to access their funds, they discovered that the money had vanished.

In another crypto scam, exposed by a joint investigation in the UK and the Netherlands, six people were arrested for creating a fake online cryptocurrency exchange that duped more than 4,000 victims in 12 countries out of an estimated £19m. The scammers were able to access bitcoin wallets using so-called typosquatting. This technique relies on accidental misspellings by people typing the web address of an authentic exchange into their browsers. Victims arrive at a fake website designed to resemble the site they intended to visit. Its address may have only one letter different from that of the legitimate exchange – a small detail that’s easy to overlook, but enough to enable the criminals to do their work.

Banks taking action

At the end of June, NatWest joined Barclays and Nationwide in curtailing customers’ use of cryptocurrencies. It reports that a large number of scams have used social media to target both retail and business banking customers. The bank has temporarily capped the daily amount they can send to crypto exchanges, including one of the world’s largest, Binance. The maximum amount varies depending on the platform, but is still typically a four-figure sum.

NatWest is also blocking payments to a small group of crypto asset firms where it has seen significant levels of fraud. Meanwhile, Santander has told its customers that it’s stopping all payments from them to Binance for their protection.

Binance insists that it takes its responsibility to shield users from attempted scams seriously, adding: “Where we are made aware of these kinds of claims, we immediately take action and have an excellent record of working with law-enforcement agencies globally to assist in their investigations.”

Katy Worobec is an expert on economic crime and managing director at UK Finance, the trade body for the financial services sector. She points out that each bank will have its own policies for protecting account-holders looking to buy and sell cryptocurrencies. 

“Most cryptocurrencies aren’t regulated by the FCA,” Worobec says. “For that reason, we would always urge customers to proceed with extreme caution before making any crypto investment.”