KARACHI: Apps linked to popular cryptocurrency exchange Binance have committed fraud with Pakistani investors worth $100 million (Rs17.7 billion), the Federal Investigation Agency (FIA) disclosed on Friday.

“FIA Cybercrime Sindh has issued an order of attendance to Hamza Khan, the general manager/growth analyst at Binance Pakistan… to explain his position on the linkage of fraudulent online investment mobile applications with Binance,” said Imran Riaz, the head of FIA Cybercrime Sindh.

A questionnaire has been sent to the Binance headquarters in Cayman Islands and Binance US to explain the matter.

Though volatile, cryptocurrencies have garnered a lot of investor interest in Pakistan and in other countries thanks to their unbelievable returns. Bitcoin, the world’s biggest cryptocurrency, hit a record high of around $65,000 in April 2021 from just $7,000 a year ago. However, it has since dropped to $41,000.

Investigation body says many Ponzi scheme-like online investment frauds going on in country

According to the Global Cryptocurrency Adoption Index — published by US-based data and software provider Chainalysis — Pakistan received a little less than $1.5 billion in cryptocurrency during 2019-20.

Though it’s difficult to find out the exact number of Pakistanis actively using Binance, data from Semrush shows that the site had 49,108 visits during July last year (Pakistanis accessing the platform via the app are not included). Another major exchange, Coinbase, had 65,632 visits from the country during the same month.

The FIA’s additional director pointed out that recently many online investment frauds were going on in the country on the pattern of Ponzi schemes, which lure investors and pay profits to earlier investors with funds from more recent investors.

“These schemes benefit old clients at the cost of new clients and ultimately disappear when they have made substantial capital base worth billions of rupees,” the FIA said in a statement.

On Dec 20, people from all over Pakistan started contacting the FIA cybercrime’s provincial zone through social media and disclosed about at least 11 mobile apps that had stopped working over a period of time, defrauding Pakistani investors of billions of rupees, it said.

These apps include MCX, HFC, HTFOX, FXCOPY, OKIMINI, BB001, AVG86C, BX66, UG, TASKTOK, and 91fp.

“The modus operandi of these applications was to ask people for registration at Binance Crypto Exchange (Binance Holdings Limited) meant for trading in virtual currencies like Bitcoin, Ethereum, Dodgecoin, etc,” the statement said. “The next step was to transfer money from the Binance wallet to account of that particular application.”

At the same time, all members of the group were added to groups on the Telegram app where so-called expert betting signals — on the rise and fall of Bitcoin — were given by the anonymous owner of the app and the admins of the Telegram groups.

Once considerable capital base was established, these apps crashed, robbing people of millions of dollars through a referral bonus process.

According to initial findings, each app had on average 5,000 customers, with HFC reportedly having as many as 30,000 customers. Per-person investment ranged from $100 to $80,000 with an estimated average of $2,000 per person thus ‘making estimated scam stand at nearly 100 million US dollars.’

Mr Riaz revealed that the FIA Cybercrime Sindh had taken necessary actions to trace the root of this scam. “All Pakistani bank accounts linked to such apps have been debit blocked while Telegram is being contacted to provide the whereabouts of the admins of these fraudulent apps,” he said.

Besides, social media influencers promoting these apps are also being served with legal notices to explain their point of contact with the apps.

The FIA official disclosed that at least 26 suspected blockchain wallet addresses had been identified where fraudulent amount might have been transferred. “A letter has been written to Binance Holdings Limited to give details of these blockchain wallet accounts as well as debit block them,” he said.

“Binance has been asked to provide with conditions, official supporting documents, integration mechanism of these APIs [application programming interfaces] with Binance,” the statement said.

According to the FIA, Binance is the largest ‘unregulated’ virtual currency exchange where Pakistanis have invested millions of dollars.

Mr Riaz said the investigation agency had taken 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.

He hoped that “Binance will adopt a liberal and swift approach in helping Pakistan track all these financial crimes”.

He warned that in case of non-compliance, the FIA Cybercrime will be justified to recommend financial penalties on Binance through the State Bank of Pakistan.

Published in Dawn, January 8th, 2022