Fraudulent payments – where people are tricked into sending money to criminals – cost consumers £460 million in England and Wales last year. To give consumers more protection, the UK government now plans to give banks 72 hours to delay completion of potentially fraudulent transfers.
The growth of the decentralised finance sector – including cryptocurrencies and the platforms that facilitate their trade – offers an alternative to mainstream finance. But as well as new opportunities, the growth of DeFi (as it’s known) has brought serious risks of financial crime and scams.
On the one hand, the blockchain technology used in cryptocurrencies has been heralded as a means of increasing transparency and efficiency for banks and other corporations. On the other hand, DeFi presents a longstanding problem of criminal use – anonymising and masking illicit transactions and facilitating the global movement of crime proceeds.
The grooming processes that fraudsters use to gain the trust of victims can be sophisticated, with slick websites, pseudo-expertise, or promises of gain or a long-term relationship (whether romantic or business).
Once they’ve struck, the criminals convert traditional currencies into digital assets like cryptocurrencies. This enables large volumes of money to move quickly and undeclared across borders. The blockchain technologies that make this possible are celebrated as the cutting edge in financial technology, but they also pose risks by serving as avenues for money laundering, scams and other illegal activities, from narcotics trafficking to funding terrorism.
The scale is difficult to gauge, but published figures vary from about 1% to 3% of global transactions, a range of US$24 billion (£19 billion) to US$72 billion – just Bitcoin – annually.
The speed and sophistication of the evolution of scams against businesses and consumers has made it difficult for regulators to keep pace. Phone calls and phishing emails have mutated into deepfaked boardroom
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