Fraud, crypto & wallet: A virtual hold for a real crime

This has been outlined in a draft standard operating procedure (SOP) prepared by Indian Cyber Crime Coordination Centre (I4C), an arm of the ministry of home affairs, two persons told ET. The proposed framework was discussed a fortnight ago at a meeting between senior government officials and members of fintech and payment firms.

According to the SoP, crypto exchanges would be linked with the Citizen Financial Cybercrime Reporting and Management System (CFCFRMS) that was launched in 2020 to integrate state police departments with the banks and financial intermediaries.

CFCFRMS is a component of the , a vertical under I4C.

If the reported funds stolen from a is converted into at any connected to CFCFRMS, the exchange will put on hold the reported amount available in virtual account or hold the VDA, and will update the CFCFRMS about the KYC information, associated bank account details, transaction hash, and wallet ID associated with the transaction.

The LEA may issue a notice for freezing of account / (VDA) and issue directions to transfer the assets to the designated Official wallet of the LEA, says the SOP.

"A LEA controlled, dedicated wallet would mean better custody of the cryptos. Also, it's a way to safeguard the cryptos against eventualities like the exchange shutting down or the user finding a way to withdraw the coins to his private wallet, or even transferring them to a wallet it may be running with an offshore exchange," said a senior crypto industry official. However, crypto exchanges in India have severely restricted withdrawal of cryptos from the exchange wallet by member .

If the reported amount is converted into cryptocurrency at an exchange that is not on CFCFRMS, the LEA, according to the SOP, would issue a notice for freezing through available law enforcement channels. The assets may then be identified by LEA through cryptocurrency forensic analysis and a court order may be obtained to transfer the assets to the designated official wallet.

"This, I believe, may be a plan to replicate the mechanism that exists with bank accounts. While the police can issue orders for freezing or lien marking a bank account, the can move funds from a bank account to its designated account after due legal process related to seizure," said an exchange official. However, the person added that the proposal has not been discussed with crypto bourses.

If the VDAs are purchased in a peer-to-peer (P2P) transaction, where the cryptos move to another private wallet, the associated bank account (where the sale proceeds is credited) shall be lien marked to the extent of the transaction.

Sometimes fake crypto platforms act as subterfuge for moving funds with the help of money mules - or, individuals who let their bank accounts to be used for laundering proceeds of crime. The SOP mentions a recent case involving multiple complaints regarding a mobile application masquerading as an investment platform for cryptocurrency mining. The app promised investors a share in the profits earned from such investments. However, the victims of the , who were lured to invest more, soon found the platform was inaccessible and there was no way to salvage their money.

Source: Forex-Markets-Economic Times