National (NZ government coalition partner) have
decided to appoint an “Anti-Scam” Minister Mr Bayly. Ironically, on a radio platform 19 Nov 2024, Hon
Bayly appeared to “absolve” social media from any liability for scamming.
Recently, Australian banks have begun to shut out crypto currencies (1) (2) which appears to be a policy in conflict with the electioneering pledges of President elect Donald Trump.
What is Crypto Currency?
Cryptocurrency
or crypto a so-called replacement for the cash
system i.e. internationally embraced fiat money, which replaced barter.
Crypto, is a
digital currency designed to work through a computer network that is
not reliant on any central authority, such as a government or bank,
to uphold or maintain it.
Transactions are
recorded as new units of currency and are generated by the computational
solution of mathematical problems, which operates independently of a central
bank used for online transactions between individuals.
Individual crypto
ownership records are stored in a digital ledger or wallet, which
is a computerized database securing transaction of records,
controlling the creation of additional coins, and verifying the transfer of
ownership.
With a physical wallet, individuals
can hold fiat currency or bank and credit cards, which enable access to
funds. A crypto wallet doesn't hold hard currency e.g. bank notes, but
rather holds the credentials i.e. codes, needed in the form of private
keys to access the blockchain for a given cryptocurrency e.g. Bitcoin.
A crypto currency “wallet”, identifiable
via the web page of a legitimate provider of crypto wallet “sales” (3),
will validate the sale/transaction, but will not identify where that wallet and
perpetrator may be.
Given the obstacles to be overcome,
searching for the perpetrator, offers to recover stolen funds, is not a realistic
outcome, and may be tantamount to another scam.
The victim will get an apology, but no
compensation.
Cryptocurrency
Fraud.
Three players are involved in Crypto Fraud:
The Victim; the Perpetrator of the fraud and – the Facilitators.
The Victim.
In most cases, victims contribute to the
success of the theft of their money, by their own foolishness. That is, being “sucked in” by some criminal
who sells them a fraudulent offer to buy crypto via a wallet – which is issued
in good faith by a provider e.g. Bitcoin, to the fraud perpetrator – and not to
the victim.
Despite victims contributing to the crime;
this fact should only go to mitigation, not absolution or render the criminal
fraud down to a non-crime. The NZ Crimes
Act, does not provide defence of absolution to a perpetrator - nor to a
facilitator (i.e. Party to the crime), merely because the victim was “stupid”.
The Perpetrator.
In most cases, the perpetrator will
telephone the victim who will have responded via an advertisement found on
his/her computer. The ensuing
conversations encourage the victim to give the perpetrator, access to their
bank accounts from which they steal money and/or, who entice victims to send
their money to an account of, ostensibly, a genuine crypto currency seller, but
which is an account operated by the perpetrator.
The Facilitator/s.
Financial Institutions.
All financial institutions have a duty of
care to have correctly identified who owns the accounts, in compliance with the
requirements of international banking code KYC – “Know you Client/Customer” and
other international anti-money laundering protocols.
Failure of Financial Institutions to apply
a level of care i.e. Duty of Care, to the standard expected under KYC may
amount to contributory negligence.
Once money has been moved from a victim’s
account, by the perpetrator, a crime has been committed. Money laundering laws then apply. KYC and
other international criminal laws and protocols must be applied by all
financial institutions.
This KYC duty not only applies to bank
accounts used by victims – i.e. to notice unusual movement of funds from a
client’s account (e.g. 10 consecutive daily transfers of $20K), but also, to the
banks whose clients accounts are those into which the stolen money is
transferred (e.g. $20k x 10 consecutive days), from which money is moved to a
different local bank, and then transferred off shore to more bank accounts.
In one case, an Australian victim was
conned into transferring money to the account of a fraudster i.e. perpetrator
in another bank in Australia, who within seconds, transferred that stolen money
to a bank account in Hong Kong, where within minutes, the stolen money was
moved outside of the “jurisdiction”.
In this case the Hong Kong bank completed
its account opening process and KYC to their satisfaction – yet
the account holder’s physical address did not exist and that any council
utilities documents produced for verifications, were also false or were nor presented.
It appears axiomatic, that due diligence enquiries were via a desk top, rather
than a physical visit.
In the case identified, a large volume of
funds was laundered through this account off shore –with no possible
opportunity of recovery because the account holder in Hong Kong was fictitious.
This flow on effect of moving money among banks, elevates and expands the duty
of care banks should be applying to accounts held by them.
Some readers may well have encountered
frustrating delays when trying to remit funds offshore - e.g. a couple of
thousand dollars abroad to a relative in need of help.
These examples of vigilance over petty
transfers, does however, serve as some evidence that banks do undertake due
diligence on overseas transfers, and therefore any criticism of them
missing movement of monies by fraudsters – is – “Unfair”.
Caller ID Spoofing.
Telecommunication providers – allowing
fraudsters to contact victims via telephone numbers but which cease to exist –
sometimes within minutes of a fraud having been committed, are also subjected
to KYC.
The fact that a perpetrator can by the unauthorised use of someone’s number, or
via a phone number purchased on the “Dark Web”, then use
the numbers obtained as their front access to engage victims, may however, raise the issue of liabilities of
telco providers. (4)
Telcos do receive payment for calls made by
perpetrators via the above-described activities. These payments are settled on the telecoms
international wholesale market where the various carriers purchase volume in minutes
and bandwidth.
For example, a call from a BT customer in
London to your mobile, might go from BT to an AT&T station in England, then
across to the USA by satellite, then down to a station near LA and then on the
Southern Cross submarine cable to Sydney where it’s handed to Telstra. Telstra
then switch it to their mobile network who can send it to your mobile
identifier called an IMEI. Your number might be registered with Optus so Optus
receive and then terminate the call to you.
A lot of switching
going on and each carrier along the way clips the ticket from the receiving
carrier with the terminating carrier getting a small settlement. This is done
via the international telecoms wholesale market where each buy and sells
millions of minutes and truckloads of data bandwidth, to other carriers.
Furthermore, networks
are now largely web based so voice and data are transmitted in data packets but
there are still data volume settlements as described in the older
technologies.
Bottom line is that the ability to trace
the true origin is technically possible if there was full cooperation from the
other carriers along the chain.
Internet.
Internet platforms e.g. Facebook – which
hosted adverts showing high profile persons, such as the adverts portending to
show the New Zealand Prime Minister and a profile New Zealand woman (presumably
without their knowledge) prompting sale of cryptocurrency, must give rise to a duty
of care upon the social platform, to confirm the content is valid.
The same social media displayed a former
Australian Prime Minister (presumably without his knowledge), also promoting
cryptocurrency.
Negligence by facilitators failure to apply
due diligence to a level or standard, when actions and circumstances of the perpetrator’s
activities are such that they reasonably, should have been detected by security
algorithms within the facilitator’s realm of responsibility, is potentially
grounds for filing claims for negligence and damages.
Remedies.
Find the perpetrator?
Research suggests that
most crypto scamming businesses are linked to major crime syndicates domiciled in Tajikistan,
Russia, Malta, Vietnam, Cambodia, Myanmar and China; where co-operation from
government security agencies is unlikely and asking questions as to the
whereabouts of perpetrators when visiting these locations, may not be, a safe
way to travel.
Canada, USA also come
under the radar with South Korea and Israel emerging prime recipient countries. Bucharest in Romania has been identified as a
recent recipient.
Sue the facilitators?
Trouble with this option is, Justice
is Money: Just Money.
Facilitators, as described above, are Big
Commercial Operators – with lots of money.
Scammed victims – often elderly who have been
baffled by modern technology – losing their life savings - don’t have the money
to file their claim against these Monoliths for: (a) compensation of money
stolen from their accounts (b) collateral damage e.g. forced to sell one’s
house to get the finance to survive (c) legal costs of hiring a lawyer to lead
the case in Court.
In Brevi: Victims simply don’t have
the money to get Justice via our Courts.
Ross Meurant BA MPP. Company Director. Founder of GENA which specialises in Cryptocurrency Fraud www.gena.co.nz Former Police Inspector, Member of Parliament & Honorary Consul.
(1)
https://thepaypers.com/cryptocurrencies/hsbc-australia-blocks-payments-to-crypto-exchanges--1269319
(3) https://www.binance.com/en/wallet/account/main/deposit/crypto/BTC
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