Sri Lanka Bank Mulls Charges to Return $47M to Scam Victims

The Central Bank of Sri Lanka is considering criminally charging operators of a cryptocurrency scam called Sports Chain that saw investors lose $47 million.

The scam offered a 500% return to victims of runaway inflation, who were unaware that Sports Chain was a nonexistent cryptocurrency. 

Sports Chain Victims Look for Central Bank Charges to Recover Funds

Victims investing $47 million in the scheme reportedly pawned jewelry, refinanced property, and sold vehicles amid runaway inflation. The economic turmoil that gripped the island nation since Aug. 2022 saw inflation reach 50.6% in Feb. 2023. It has since slowed marginally to 50.3%.

So far, the Sri Lankan Financial Crimes Investigation Division (FCID) has charged nine suspects with money laundering in connection with the scam. The suspects could be ordered to pay a fine of three times the stolen funds if found guilty and face between five and 20 years of jail time. The FCID has frozen the suspects’ bank accounts and has started seizing their assets.

Lawyers for the accused maintain that the suspects had no part in developing the app that facilitated the fraud and could not be charged with money laundering.

“Our clients were not the creators of this app. They had no control over it,” said Tivank Ekaratne, legal counsel for the accused.

To make victims whole, the Sri Lankan central bank must charge the accused for violating the Banking Act.

The Colombo Magistrate’s Court will hear the FCID’s case in Aug. 2023.

Scams Proliferate in Countries Beset by Currency Devaluation and Inflation

Crypto Ponzi and pyramid schemes in developing countries often exploit immature regulatory frameworks and exchanges lacking robust anti-money laundering controls, said Chainalysis Account Executive for North and Latin America. 

Additionally, Gemini’s 2022 Global State of Crypto Report revealed that currency devaluation and inflation were key drivers of crypto adoption. The mix of immature regulation and currency devaluation makes investors in countries like Brazil, Argentina, and South Africa more vulnerable to scams.

In 2022, for example, crypto scams in Argentina and Brazil cost investors $11.8 million and $7.3 million. 

Following the collapse of FTX, Argentine markets regulator CNV has explored creating a proof-of-solvency requirement for crypto companies. The watchdog also indicated in Feb. 2023 that it would assemble a working group to reach a consensus on regulatory parameters.

Binance, the global cryptocurrency exchange currently under investigation by the U.S. Commodity Futures Trading Commission for lax anti-money laundering controls, announced its expansion into Argentina today. Traders can buy cryptocurrencies directly with the Argentine peso.

Argentines invested in cryptocurrencies through exchanges like FTX amid near triple-digit inflation that swept the nation last year. 

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