Nepal's Crypto Ban Hinders Fraud Victims from Reporting Scams

Nepal's blanket ban on cryptocurrency trading is making it more difficult for victims of fraud to report their cases to authorities, according to a new report by the country's Financial Intelligence Unit (FIU). The FIU, which operates under Nepal Rastra Bank, highlighted the challenges faced by victims of crypto-related scams in its Strategic Analysis Report for 2024.

The report states that fraudsters are using sophisticated techniques, such as "smurfing," where large transactions are split into smaller ones to avoid detection. These criminals are also turning illicit funds into digital currencies, making it even harder for authorities to trace or seize the assets. The rise in scams targeting individuals with promises of high returns on digital assets has become a major concern.

Fraudsters typically lure victims through advertisements that encourage them to deposit money into certain bank or wallet accounts, only for the funds to disappear without a trace. In a country like Nepal, where cryptocurrency investment is illegal, those who fall victim to these scams are often too afraid to report their losses due to the potential legal repercussions. This creates a barrier for law enforcement, which struggles to identify and address fraud in the crypto space.

Nepal implemented a ban on cryptocurrency trading and mining in September 2021, and in January 2023, the Nepalese Telecommunications Authority instructed internet service providers to block access to crypto-related websites, including trading platforms. The crackdown on online trading is an attempt to limit exposure to scams that primarily spread through social media and online ads. However, the illegal status of cryptocurrency trading has only made it harder for fraud victims to seek justice, as they fear getting into legal trouble.

The FIU has called for more stringent monitoring of cryptocurrency transactions to combat these fraudulent activities. The report also recommended better public education about the risks of digital asset investments, increased cooperation between different government departments, and the creation of a more balanced regulatory framework to help prevent crypto-related fraud in the future.

Nepal is not the only country in South Asia to impose strict regulations on digital assets. Along with China, Russia, Iran, and Bangladesh, Nepal has banned all cryptocurrency trading activities. However, other countries in the region have adopted more flexible approaches. For example, India has not banned crypto trading, but it imposes high taxes on profits made from cryptocurrency investments, with no provision to offset losses against taxable gains.

In a significant policy shift, Pakistan recently decided to legalize virtual assets, a move that marks a departure from its previous stance against crypto. This change is believed to be primarily aimed at laying the groundwork for a central bank digital currency (CBDC), rather than fully embracing decentralized cryptocurrencies like Bitcoin (BTC).

On the other hand, Bhutan has taken a more positive stance toward crypto. The country has accumulated over $1 billion in Bitcoin, benefiting from the currency's rising value. Bhutan’s pro-crypto approach contrasts with its neighboring nations, which remain more cautious or outright restrictive when it comes to digital assets.

In conclusion, Nepal's decision to ban cryptocurrency trading has unintentionally created a barrier for fraud victims, as they hesitate to report scams for fear of legal consequences. As cryptocurrency-related fraud continues to rise, the FIU urges for better regulatory measures and greater awareness to protect citizens from falling victim to scams. Meanwhile, neighboring countries are exploring different approaches, with some embracing the potential of digital currencies, while others maintain a more cautious or restrictive approach.