India clamps down on digital fraud as cases rise in 2024

In 2024, India’s law-enforcement agencies cracked down on several digital assets and finance technology frauds while exchanges and investment platforms grappled with regulatory scrutiny and security breaches.

India reportedly lost over $44 million in digital asset scams in 2024, ranking fifth globally. It recorded about 840 complaints related to digital assets.

“In 2024, India saw significant crypto-related frauds that deeply impacted investor trust and regulatory sentiment,” said Rohan Sharan, founder and chief executive of Timechain Labs, an on-chain application development firm utilizing BSV blockchain technology.

“These incidents fueled skepticism among regulators and the general public, slowing adoption and making the case for stricter compliance frameworks. The need for platforms offering traceability and transparency is now more critical than ever, and blockchain innovations that focus on these values could be game-changers for the industry,” Sharan told CoinGeek.

This year’s most high-profile digital asset fraud was the WazirX hack, one of India’s biggest digital asset exchanges by trading volume. WazirX suffered a $234 million breach, allegedly executed by North Korean hacking groups, including Lazarus. On July 18, WazirX said it lost the amount from one of its multisig wallets, which utilized Liminal’s digital asset custody and wallet infrastructure from February 2023.

WazirX halted trading and announced a $23 million reward to help recover the $234 million it lost in the cyber attack.

“We have increased the White Hat Recovery reward to 10%, i.e., up to $23 million. We invite white hat hackers, blockchain forensics experts, and cybersecurity professionals from around the world to join this critical mission and protect the integrity of the crypto ecosystem,” the digital asset exchange said in July on X.

Amit Kumar Gupta, a legal practitioner at the Supreme Court of India, pointed out that the WazirX breach affected both hot and cold wallets and compromised a substantial portion of user funds.

‘Worrisome, to say the least’

During the year, authorities intensified their oversight of the digital assets sector. Gupta said investor confidence waned, reducing trading volumes, while exchanges enhanced their security protocols to prevent future breaches.

“A $2.8 million crypto scam in Andhra Pradesh (in South India) targeted over 320 investors with promises of fixed monthly returns. The fraudulent scheme lured victims through local promotions and fake guarantees,” Gupta pointed out.

Next in line was the HPZ Token scam in India, which defrauded investors by promising high returns through a fake “cryptocurrency” scheme. India’s Enforcement Directorate (ED), the law enforcement and economic intelligence agency, reportedly accused multiple suspects of defrauding investors by promising to double their investments through a mobile application, HPZ Token, as well as online gaming and betting websites. The proceeds of crime, in the form of both movable and immovable assets, have been provisionally attached to multiple suspects, including shell entities with links to China.

“The impact is worrisome, to say the least,” pointed out Raj Kapoor, founder of India Blockchain Alliance (IBA).

“For a nascent industry struggling to find its niche, these incidents are a wet blanket. High-profile frauds erode trust and damage public confidence in cryptocurrencies, with users questioning the security of exchanges and the lack of consumer protection,” Kapoor added.

Fintech token scams, too, took off as fraudsters posed as representatives of a prominent finance technology firm, offering fake tokens promising high returns.

“Rogue mining schemes reared their ugly head as several fake mining pools claimed to offer shared profits from crypto mining but disappeared after collecting funds,” Kapoor stated. These incidents intensified calls for stricter regulation, particularly around exchange operations and user protection.

While the world’s most populous nation is looking to regulate the digital assets space, the South Asian nation has informed that there is no fixed timeline for introducing comprehensive regulatory guidelines for the country’s Virtual Digital Assets (VDAs). That puts the onus on digital asset exchanges and individuals to stay alert and tackle digital assets and related frauds.

According to Sharat Chandra, founder of EmpowerEdge Ventures and a startup enabler, high-profile cases involved scams that exploited regulatory loopholes, leading to significant financial losses for investors.

“These incidents have prompted calls for stronger regulatory measures to protect consumers and enhance the integrity of the crypto market. The impact of these frauds has been twofold: while they have shaken investor confidence, they have also catalyzed discussions around the necessity for clearer regulations and better consumer education within the crypto ecosystem,” Chandra added.

Along with the Enforcement Directorate, the Reserve Bank of India (RBI) has been active in identifying and arresting digital frauds. In December, the central bank introduced an artificial intelligence/machine learning (AI/ML)-based model, MuleHunter.AI, developed by the Reserve Bank Innovation Hub (RBIH), to tackle digital frauds. The AI model is also expected to help banks deal with the issue of mule bank accounts, a typical tactic fraudsters use to funnel the proceeds of their fraudulent activities.

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