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UK cryptocurrency fraud up by a third in a year

Author: Dr. Angelika Hellweger  30 November 2022
2 min read

A freedom of information request has led to Action Fraud, the national reporting centre for fraud and cybercrime, stating that financial losses involving crypto totalled £226 million for the period from October 2021 to September 2022. This is a 32% increase on the figure for the previous year.

The number of reported incidents in the year from October 2021 was 10,030 – a 16% increase on the previous 12 months.

The release of the figures comes as the failure of the huge FTX crypto exchange is investigated in a number of jurisdictions. The period in question saw the collapse of the stablecoin Terra, which affected other cryptocurrencies and related companies and led to reported losses of £33 million.

The past year has also seen a number of high-profile crypto-related frauds, many of which have involved smaller or first-time investors who were attracted by the large amounts of money that some people had made in the boom period for cryptocurrency. Fake celebrity endorsements have deceived investors, as have pump and dump frauds; where the value of a cryptoasset is falsely inflated before it is sold to eager buyers shortly before its value crashes.

The problems have prompted the UK’s financial regulator, the Financial Conduct Authority, (FCA) to express concerns about people investing in high-risk assets. In August this year, the FCA released guidance for firms that promote such products and banned sales incentives such as bonuses for referring a friend. There have also been reports of some UK banks limiting or stopping payments to cryptocurrency exchanges, citing the high rate of fraud as the reason for doing so.

As the technology develops, new fraudulent practices are developing too. We have seen an increase in the following types of fraud:

  • Dusting Attacks: Small amounts of crypto assets are sent to thousands of wallets, making it difficult to unmask the identity of wrong doers.
  • Rug pull scams: Developers or creators promote new projects, such as a new stable coin or Non-Fungible Token'>NFT, only to then disappear with investors’ proceeds.
  • Fake cryptocurrency exchanges: Investors are lured by wrongdoers with the promise of significant returns. The supposed proceeds are then said to have been transferred into an exchange, although in reality they do not exist.

Fortunately, there is an established framework in the UK for tracing crypto assets and recovering them using the tools that are available within the courts. There are various mechanisms by which crypto assets can be tracked, frozen and recovered. Furthermore, judges in the UK have become more familiar with new, developing digital assets and how they can be mixed up in fraud. Courts have shown a willingness to deal with such matters.

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Dr. Angelika Hellweger

Legal Director

angelika.hellweger@rahmanravelli.co.uk
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Angelika is a specialist in international, high-level economic crime investigations and large-scale commercial disputes. She has widely-recognised expertise in representing corporates and conglomerates in Europe, the Middle East, Africa and United States.

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