Crypto scams are widespread – here’s how to protect yourself

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The UAE has embraced the tremendous potential of cryptocurrency and blockchain technologies – and that is undeniably a good thing.

One of the positive outcomes of standardising crypto transactions in the UAE has been the boosting of its leverage to buy real-world assets.

But there are reasons to remain wary of cryptocurrency. 

• Crypto crisis will weed out the Gulf’s weak players, say analysts
• Cryptocurrencies face regulation to avoid illicit dealings

Government efforts to secure crypto transactions don’t yet prevent scams. And it remains a fact that the anonymous nature of crypto encourages fraudsters. 

According to Tarek Mohammed, head of the digital assets crime section at Dubai Police, in the first half of 2021 there were hundreds of cases of crypto scams in Dubai with victims losing up to AED80 million in total.

Crypto fraud unpacked

Scams can occur using diverse means and tactics:

• Transfer recall scam
  The scammer buys cryptocurrencies, sends funds to the seller and receives the tokens. They will then file a fraudulent complaint with their bank, pretending they were the victim of a scam to recall the transferred funds.
• Peer-to-peer transactions using illegally gained money
  A person offers to purchase tokens at a good price in exchange for cash, bank transfers or a cheque. Crypto asset sellers are, in fact, receiving money from criminal proceedings.

• Rubber cheque
  The scammer offers to buy cryptocurrency at a good price using a bank cheque which is in fact a rubber cheque later refused by the seller’s bank.
• Third party scam
  The scammer, posing as a broker, finds a seller and a buyer and offers them a lucrative deal. The broker convinces the buyer and the seller to meet in person for the transaction and asks the buyer to bring cash.
  
  The fake broker then gives the buyer’s money to the seller and asks the seller to send the cryptocurrency to a trading account, which is his own account instead of the buyer’s account.
• Copycat administrator
  The scammer messages the user, posing as an administrator, pretends to have interest in the query and offers help which involves asking for the target’s private keys to steal the member’s account details and get wallet access.
• Pump and dump crypto group
  Supposed utility tokens with little or no future potential use are pumped by the scammer (the founder or an insider) who then sells his tokens on a short-lived exponential rise in price on crypto exchanges, which then crashes, leaving the second wave of investors holding useless and worthless tokens.
• Giveaway scam
  |The victim is tricked by being offered free crypto assets (cryptocurrency or NFTs) in exchange for his wallets’ public addresses and private keys. The giveaway advertisement can be from legitimate pages.
• Counterfeit NFTs
  The scammer hacks a NFT, recreates it and sells it on legitimate platforms.

In most of these scams, the scammer enters into agreements with the victim via social media platforms, mostly Telegram groups without having a formal agreement in place. 

How to avoid these scams

There are general precautions to keep in mind when buying or selling crypto assets.

First, it is imperative to not share your personal information or entertain anonymous calls, messages and ads that often claim to be from licensed companies.

It is essential to conduct all transactions using exchange platforms regulated by the UAE financial regulator by checking, for example, with Dubai Financial Service Regulatory Authority (DFSA) or the Abu Dhabi Global Market (ADGM) for their licence and regulatory permission. 

What’s more, the UAE Security and Commodities Authority (SCA) has added entity names or Twitter accounts to its list of alerts for those falsely claiming to be regulated by the SCA.

Likewise, the DFSA publishes alerts about fraudulent crypto assets falsely claiming to be regulated by Dubai International Financial Centre.

Michael Kortbawi is a partner at BSA Ahmad Bin Hezeem and Associates LLP