Page 17 - Unlicensed Digital Investment Schemes (UDIS)

In conclusion, the dark web and crypto currency pro- North Carolina, brought legal action against Com-
vide a fertile ground for developing UDISs, and the lack munityOne Bank for allowing a USD 40 million Ponzi
of regulation attracts criminal elements into this eco- scheme to be operational out of one bank account.
system. In fact, the consulting firm, Strategy India esti- However, CommunityOne never filed a single suspi-
mates that there are over fifty ongoing crypto currency cious transaction report, ignoring hundreds of suspi-
related UDIS with more than USD 600 million invested cious transactions.
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in India at present. See Box 3 for recent happenings The US Attorney Tompkins stated that “Banks asleep
in India. at the switch need to wake up. The Banking Secrecy
The fact that governments do not acknowledge Act applies to more than just drug and terrorist financ-
crypto currency as an official currency and regulate its ing.” As part of a settlement with the State, Communi-
value or exchange, in the hopes of deterring investors tyOne was required to pay USD 400,000 in restitution
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and traders may not be achieving the desired result. to victims and prohibited from expansion in the state.
The financial underworld is evolving and the black mar- If banks and payment processors can be held lia-
ket makers have moved from cash to borderless virtual, ble for aiding and abetting Ponzi schemes, it is log-
untraceable and anonymous cryptocurrency. ical to assume that internet service providers (ISPs),
social networks and messaging services may one day
7.2.2 Social Network and other internet intermediaries be deemed liable for facilitation of unlicensed digital
liability investment schemes.
Could social networks and other internet intermediar- If a ‘but for’ test is applied for liability, or if the com-
ies be liable for Aiding and Abetting Financial Fraud? pany has previously been put on notice that crimes
Previous US Federal Trade Commission (FTC) legal ac- are being facilitated by the client or user (e.g. planning
tions have established that payment providers will be terrorist acts or the sale of guns/drugs), then, it would
held liable for facilitating financial frauds on consum- seem that there is a strong argument in favor of legal
ers. In 2010, for example, the FTC won a USD 3.6 million liability for any company which facilitates, and is prof-
judgment against a payments processor and its subsid- iting from UDIS, albeit indirectly.
iary that were profiting from processing unauthorized For example, Facebook and Twitter are now subject
debits on behalf of Internet based scams and deceptive of Congressional inquiries, as well as the investigation
telemarketers. by Special Counsel Robert Mueller on their involve-
And, various US banks have been recently sued by ment in any manipulation of US Presidential elections
US Attorney Generals and the Ponzi victims for failing in 2016. Facebook profited through the selling of USD
to report suspicious transactions and lack of robust 100,000 worth of advertisements to Russian entities
money laundering detection protocols in place. For which allegedly sought to influence the 2016 US Elec-
example, US Attorney General Anne Tompkins, from tions. Are payments processors similarly liable for
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BOX 3
INDIAN REGULATORS SEND MIXED SIGNALS ON CRYPTO CURRENCIES

In February of 2018, the Indian finance minister coin debacle comes only six months after the On-
pronounced crypto currencies to not be legal ten- eCoin UDIS was uncovered by Indian authorities
der in India. and multiple arrests were made of 23 promoters
Similarly, in April of this year, the Reserve Bank in the midst of their informational session with po-
of India (RBI) published a statement that it will no tential new investors/victims. It is alleged that 75
longer provide services to any person or business Crore Rupees were stolen by OneCoin which was a
dealing in crypto currencies, indicating in its ‘State- multi-jurisdictional UDIS.
ment on Development and Regulatory Policies,’ However, the Indian Government’s pronounce-
that virtual currencies raise concern of consumer ment would seem that it is now impossible for cryp-
protection, market integrity and money launder- to currencies and account holders to use commer-
ing among others. cial banks. This policy does not make sense (from
India has had its fair share of high profile ICO a consumer protection standpoint at least) when
and crypto currency related UDIS. Most recently, one considers that the RBI’s ‘Statement on Devel-
a noted crypto currency expert, author and pro- opment and Regulatory Policies,’ which indicates
moter of Bitcoin in India, Amit Bhardwaj was ar- that it will be conducting a feasibility study related
rested in Delhi for reportedly running a 300 billion to the development of its own state-backed crypto
Indian Rupee UDIS called GainBitcoin which stole currency.
from approximately 8,000 victims. The GainBit-

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