Middle East Emerges as Hotbed for Crypto Fraud and Digital Hawala Transfers

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In the 1980s, notorious Indian gangster Dawood Ibrahim fled to Dubai, transforming the United Arab Emirates into a safe haven for underworld operations. Decades later, a new breed of criminals tech-savvy, faceless, and ruthless has taken root in the same region. Their weapon of choice isn’t firearms or extortion. It’s cryptocurrency.

According to investigators and legal experts, the Middle East, especially Dubai, is fast becoming the epicentre of global crypto fraud and digital hawala operations, a high-tech update to the age-old underground money transfer network that has long plagued financial systems across South Asia and the Middle East.

Crypto Replaces Cash in the Black Market

Indian enforcement agencies have recently zeroed in on this evolving threat. In a series of raids conducted across multiple states, the Income Tax Department discovered a sprawling network using cryptocurrency to move unaccounted funds through hawala routes into Dubai. The scheme typically involves buying digital tokens, loading them into virtual wallets, and then converting them into dirhams, facilitating untraceable, cross-border transactions.

“The hawala traders moved to digital assets and began to buy cryptocurrency using multiple bank accounts,” a central agency official explained. Authorities suspect that this migration was accelerated by India’s demonetization of high-value notes, which forced hawala operators to seek alternatives to large cash transactions.

Billions Vanished in Dubai-Based Scams

The scale of these frauds is staggering. In January last year, the U.S. Department of Justice charged an Australian national residing in Dubai with orchestrating a $1.89 billion cryptocurrency mining scam. Despite the legal pressure, he continues to allegedly pitch new crypto products from the UAE.

Back home, India’s cybercrime landscape is awash with cases where victims are lured into fake investment schemes with the promise of high returns returns that disappear when withdrawal attempts are made.

“The money looks real online until it’s gone.”

Cyber law expert Advocate Pankaj Bafna outlined the mechanics behind these frauds. “Criminals promise high returns in crypto investment, and it looks very convincing online,” he said. “However, when victims try to redeem their money, they realise it’s all gone.”

Bafna warns that more than 10,000 types of crypto tokens circulate globally, many of them created solely to dupe unsuspecting investors. Funds collected through such schemes, whether via credit card fraud, gaming app scams, or phishing operations, are funnelled through multiple bank accounts, converted to cryptocurrency, and swiftly sent abroad.

He estimates that over 75% of the money collected through fraudulent gaming apps ends up in China. “Though there are no official estimates, the total fraud through these schemes could easily cross ₹1 lakh crore annually,” Bafna said, pointing out that most victims don’t file complaints because the transactions themselves are off the books.

Gaming Apps: The Trojan Horse of Crypto Laundering

In one common tactic, victims are asked to deposit money to play online games. As they accumulate “points,” these are falsely shown as cryptocurrency rewards in digital wallets. But when they attempt to cash out, they discover the wallets never existed.

This scam, according to Bafna, is spreading rapidly due to its low visibility and high returns. “Any small amount made through fraud is immediately moved through bank accounts and converted to cryptocurrency,” he noted.

Law Enforcement Trails While Tech Leaps Ahead

Despite the growing threat, law enforcement agencies remain a step behind. Former Mumbai Police Commissioner and Maharashtra DGP D. Sivanandhan admitted that police and financial crime units are struggling to keep up.

“The digital criminals are using the very latest technology available, and the law enforcement agencies are lagging,” he said. “The lack of one international cooperation protocol is also a big impediment.”

The decentralised nature of cryptocurrency, combined with jurisdictional complexities, has created an ideal storm for cross-border fraudsters to thrive. Even as global regulators grapple with establishing common standards, the digital hawala networks are evolving faster than the policies designed to stop them.

The New Face of the Underworld

What started decades ago with gangsters in Dubai has evolved into a sophisticated, borderless digital underworld. No longer reliant on muscle and fear, these new-age criminals exploit code, connectivity, and anonymity, making them harder to trace and even harder to stop.

With billions at stake and regulatory frameworks still catching up, the fight against crypto-fueled hawala and gaming fraud is just beginning. As Bafna put it, “It’s no longer just a legal issue; it’s a financial epidemic.”

IMPORTANT NOTICE

This article is sponsored content. Kryptonary does not verify or endorse the claims, statistics, or information provided. Cryptocurrency investments are speculative and highly risky; you should be prepared to lose all invested capital. Kryptonary does not perform due diligence on featured projects and disclaims all liability for any investment decisions made based on this content. Readers are strongly advised to conduct their own independent research and understand the inherent risks of cryptocurrency investments.

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