Pakistan: Binance gets pulled up by the regulators as Ponzi mobile apps surface

Pakistan’s Federal Investigation Agency’s (FIA) Cyber Crime Wing has issued a notice to crypto exchange Binance while investigating a scam, local media reported.

Notably, the reports that FIA has also asked for the attendance of Hamza Khan, the general manager/growth analyst at Binance Pakistan, to explain the company’s position. A release issued in this case noted,

“A relevant questionnaire has also been sent to [the] Binance Headquarters [in] the Cayman Islands and Binance US to explain the same.”

The development comes on the backdrop of increasing investment frauds, especially Ponzi schemes that promise sky-high returns to Pakistanis, the agency noted.

“These schemes benefit old clients at the cost of new clients and ultimately disappear when they have made [a] substantial capital base worth billions of rupees.”

Scope of the scam

Here, the crypto scam in question is estimated to be close to $100 million. Furthermore, it came to light in December after several complaints. The watchdog said, at least 11 mobile apps were identified that “defrauded people of billions of rupees,” including names like MCX, HFC, HTFOX, FXCOPY, OKIMINI, etc. FIA further explained,

“The modus operandi of these applications was to ask people for registration at Binance Crypto Exchange (Binance Holdings Limited) […] the next step was to transfer money from the Binance Wallet to the account of that particular application.”

Therefore, Binance will be required “to provide with conditions, official supporting documents, integration mechanism of these API’s (applications).” This being said, the FIA also takes Binance to be the “largest unregulated virtual currency exchange” in the country with millions of dollars worth of investment.

But, this goes deeper as many Pakistanis, who were registered members, were allegedly added on Telegram groups where anonymous admins signaled at investment bets. And, at the end of the Ponzi schemes, the apps reportedly crashed, stripping people of the invested money. The agency also said that each scheme had an average of 5,000 customers with,

“The reported range of investment per person was from $100 to $80,000 with an estimated average of $2,000 per person thus making estimated scam stand at nearly $100m.”

Binance’s regulatory woes

After the scam was identified, all Pakistani bank accounts linked to such apps are under a “debit block,” per the report. The statement said,

“At least 26 suspect blockchain wallet addresses [Binance wallet address] have been identified where fraudulent amount may have been transferred. A letter has been written to Binance Holdings Limited to give the details of these blockchain wallet accounts as well as to debit block them.”

Further, social media influencers who were found promoting these apps are also set to receive legal notices from the FIA to “explain their point of contact with the apps.” However, Binance’s regulatory woes don’t seem to get over as the statement covered by Dawn also noted,

“FIA Cyber Crime Sindh has started steps towards keeping a close eye on peer-to-peer transactions done by Pakistanis on Binance to curb the menace of terror-financing and money laundering as Binance is the largest easy-to-go platform facilitating such activities.”

The agency is particular that in case of non-compliance by Binance, FIA can impose financial penalties on the exchange through the State Bank of Pakistan.

Pakistan’s crypto reserves

Recently, it was estimated that Pakistan is already sitting on cryptocurrency purchases worth $50 million made in the last six months. With the Federation of Pakistan Chamber of Commerce and Industry estimating,

“Pakistan recorded around $20 billion of cryptocurrency value in 2020-21, showing an abnormal increase of 711 percent.”