Nepal cracks down on ‘crypto’ fraud; Paju City targets tax defaulters

With the growing popularity of digital currencies as an alternative form of cash, some countries and cities are facing challenges tied to the asset class. These include Nepal, which is working to address the rising number of “crypto” frauds, and the South Korean city of Paju, which recently issued a stern warning against tax defaulters.

Nepal’s Financial Intelligence Unit (FIU) has released a report identifying a steep rise in digital currency-related fraud activities despite a blanket ban on the asset class since 2017. 

In the paper titled “Strategic Analysis Report,” the FIU highlighted the growing trend of fraud in the South Asian country, a problem inflamed by the use of digital currencies. The collaboration between digital assets and social media among scammers presents a significant obstacle for law enforcement agencies.

For social media, the array of social networking platforms provides a treasure trove of potential victims for scammers. The FIU noted that scammers could create several social media accounts without extensive verification procedures while obtaining critical information to defraud victims in daring schemes.

Nepal’s leading financial crime watchdog identified a streak of payment systems vulnerabilities exploited by scammers. Given the novelty of mobile banking, Nepalese scammers are exploring new loopholes to swindle users while leveraging human errors across the value chain.

Proceeds from social media and payment systems fraud are converted to digital assets, with scammers employing mixers to complicate the recovery process. Apart from conversion, daring schemes involve the false promise of high returns on digital asset investment on social media.

The problem is exacerbated by the legal status of digital assets in Nepal, which leads to the underreporting of digital currency-related crime. Since digital currencies are outlawed in the landlocked country, several victims are reluctant to file a report with law enforcement agencies, leading to scammers running riot.

Despite the spate of underreporting, Nepal’s police have recovered funds over $1.4 million from predicate crimes of narcotics, fraud, bank offenses, and human trafficking. 

The report noted that among cases reported to law enforcement, gift and parcel fraud took the lead at 21%, while social media impersonation and iPhone fraud made up 30% of cases. Other cases include OTP and lottery frauds, schemes involving online business platforms, and unauthorized access to bank accounts.

Cracking down hard

To solve the challenge of digital asset-related fraud, Nepalese authorities are turning to mass public awareness to educate citizens on potential scams. Aside from education incentives, the FIU recommends increased scrutiny of financial transactions to identify suspicious transactions.

The report recommends borrowing ideas from its neighbors like the Citizen Financial Cyber Fraud Reporting and Management System in India and China’s cooperation with the telecommunications sector.

The FIU said adopting policies like the United Kingdom’s Action Fraud and Singapore’s Anti-Scam Command (ASCom) will play a key role in stifling fraudsters’ operation. 

South Korean city tightens leash on tax defaulters

As South Korea’s tax regulators tighten the noose for citizens, Paju City in Gyeonggi Province is keen on confiscating the digital asset holdings of tax defaulters in the region to balance the books.

The city’s tax watchdog has received the green light from administrators to seize digital currencies belonging to individuals evading taxes. So far, authorities have identified 17 defaulters, while the watchdog issues dire warnings to the offenders to pay their taxes.

A public advisory gives the tax defaulters until the end of the month to pay their outstanding tax obligations of KRW 124 million (US$88,000). Authorities said they have traced digital assets belonging to the 17 individuals to several local exchanges, amounting to KRW 50 million (US$35,881).

While the amount on exchanges falls short of the debt, authorities said it is the first step in the right direction, hinting at further punitive action against the defaulters.

“We have sent virtual asset transfer and sale notices to 17 people who have so far notified them of their unpaid local taxes, totaling 124 million won,” said an official.

Given the popularity of digital assets in South Korea, several citizens have turned to the asset class to circumnavigate local tax rules, putting their assets beyond the reach of the tax watchdog. Despite the rising trend, South Korean authorities are upping the ante to recover outstanding taxes converted to digital assets by unscrupulous citizens.

“If they do not pay their unpaid taxes by the end of this month, we plan to transfer the virtual assets they own, totaling 50 million won, to the city’s account and sell them,” said a spokesperson. “This is a clear message to the taxpayers that they cannot hide their assets, and we will track down their assets to the end and enforce penalties.”

This is not the first time Paju City has confiscated and sold the digital asset holdings of tax defaulters. In July, officials seized nearly $72,000 from scores of tax delinquents on exchanges after months of warnings from authorities.

Maintaining a hard stance

Paju City is not the only metropolis cracking down on digital asset-backed tax evasion in South Korea, with several cities pledging to increase the monitoring of tax offenses. The National Tax Service (NTS) reiterated its intention to prevent tax evasion by relocating assets abroad or converting them to digital assets.

Since the tax crusade, the NTS has seized over $182 million from tax offenders, with a chunk of the sum coming from digital asset forfeitures. The country is inching toward a 20% digital asset tax policy in the coming years, adopting a cautious approach to avoid spooking investors.

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