Although digital asset trading of cryptocurrencies is prohibited in Nepal, it has been stated that malicious people are widely used to organize cyber frauds. FIU is a unit of Nepal Rastra Bank responsible for monitoring and preventing financial frauds, money laundering and terrorism financing.

According to FIU’s “Strategic Analysis Report” published on November 18, malicious actors have recently been found to use cryptocurrencies to launder illegal funds.

The report highlights that fraudsters are converting illicit funds into cryptocurrencies, making it extremely difficult for authorities to track and recover the funds.

The fact that cryptocurrencies can be easily transferred to offshore accounts makes tracking down fraudsters even more complicated. In addition, Nepal’s citizens are increasingly falling victim to crypto investment scams.

Scammers contact potential victims through social media platforms or online advertisements and often encourage them to invest with unrealistic, enticing promises of high returns.

In most cases, the illegality of crypto trading prevents victims from approaching the authorities. Victims of fraud have difficulty reporting their crimes out of fear of embarrassment or possible legal consequences.

Approximately 64% of all fraud cases reported to authorities in Nepal were recorded as cyber fraud by May 2024. In order to avoid this situation, the FIU presented several important recommendations.

These include the need for more careful monitoring of crypto transactions, training financial institutions to recognize “red flags” that indicate fraud, and timely reporting.

It was also emphasized that there is a need to raise broader public awareness against fraud, strengthen inter-agency cooperation and create an updated regulatory framework to address digital payment frauds.

Another important step in the fight against cryptocurrency fraud came from South Korea. South Korean Finance Minister Choi Sang-Mok announced that his country will introduce new reporting obligations on cross-border crypto transactions in a speech at the G20 summit.

Under the new rules, every business dealing with cross-border crypto transfers will have to register in advance with the relevant authorities and report all transfer information to the Bank of Korea on a monthly basis.

Such regulations represent a global approach to curbing the misuse of cryptocurrencies and enable a more effective fight against fraud through digital assets through the introduction of stricter controls.

Considering the situation in Nepal, greater monitoring of cryptocurrency trading is needed to combat financial crimes and a strong effort must be made to raise public awareness on this issue.

Such measures can be effective in combating fraud and make societies more resilient to increasing risks, especially as cryptocurrencies become more widespread among the public.