Crypto Trading Ban In this Pro-Crypto Country to Silence Fraud Victims

Nepal’s stringent ban on crypto trading and mining, instituted in September 2021, has created unintended consequences for victims of fraud. According to the Financial Intelligence Unit’s 2024 Strategic Analysis Report, the outlawing of digital assets has discouraged people from revealing scams, strangely empowering the deceivers.

While intending to curb manipulation, the restriction inadvertently shields the malevolent by inhibiting fraud disclosure. Going forward, Nepal Rastra Bank must reevaluate whether an absolute prohibition truly protects innocents or, rather, silences and endangers them by preventing crime documentation.

The Rise of Crypto-Related Fraud in Nepal

Despite the government’s ban, fraudulent crypto schemes have proliferated across Nepal with impunity. Scammers compartmentalize large transactions into obfuscated micro-denominations to evade oversight, transmuting ill-gotten gains into decentralized digital currencies to frustrate efforts to trace or immobilize holdings. The FIU laments that many are seduced by visions of improbable returns, only to later realize their investments have evaporated without explanation.

As stated in the report, “Promotional missives entice prospective victims into transferring funds into a designated bank or digital wallet accounts under the false pretence such amounts will be returned later with outsized yields. Alas, remittances are not reimbursed as promised once received.”

The Chilling Effect on Victim Reporting

While regulations aim to curb the illicit use of cryptocurrencies, overcriminalization often breeds unintended consequences. The criminalization of crypto trading alone has led many victims to remain silent in the face of fraud for fear of prosecution, not protection. We discourage reporting not because of shame over lost funds but due to looming legal liabilities and the stigma of participating in outlawed markets. Without candour from those scammed and swindled, law enforcement finds its efforts to combat crypto-related crimes hamstrung.

Calls for Enhanced Oversight and Public Awareness

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The FIU’s report underscored the pressing need to bolster oversight of cryptocurrency transactions and raise public consciousness regarding its risks. Achieving balanced regulation necessitated cross-departmental coordination to more adeptly stymie crypto-related deceit. Unless regulatory and enforcement approaches evolve in step with the decentralized, borderless nature of digital assets, fraudsters will continue exploiting gaps.

Contrasting Crypto Regulations in South Asia

While Nepal staunchly opposes cryptocurrencies, stances among other regional players vary considerably. India levies hefty taxes on crypto profits yet denies losses as write-offs, adopting an ambivalent position some view as hindering the industry’s growth. Meanwhile, Pakistan recently permitted virtual currencies, evidencing a strategic policy shift after banning them, though the move was principally to expedite central bank digital currency rollout rather than embrace decentralized protocols.

Unique in its enthusiasm, Bhutan’s bitcoin reserves have ballooned past $1 billion given the asset’s price appreciation, fueled by the government’s welcoming approach toward innovative payment rails.

Implications for Crypto Investors

For investors operating in jurisdictions with prohibitive crypto policies, Nepal’s stringent regulations serve as a cautionary tale regarding the risks associated with digital asset deals. The reluctance of scam victims to report incidents underscores how vital it is to conduct thorough due diligence and comprehend the legal landscape before engaging in such investments.

Summing Up on Crypto Trading

Nepal’s all-encompassing ban on cryptocurrency trading has brought about unintended outcomes, notably deterring fraud victims from flagging swindles and thereby allowing deceptive behaviors to proliferate. The FIU’s call for heightened monitoring, public education, and a balanced regulatory approach highlights the necessity for rules that safeguard customers without stifling pioneering progress.

As other South Asian countries continue navigating the intricacies of digital asset legislation, Nepal’s experience underscores the importance of crafting laws addressing modern economic challenges while shielding the interests of all involved stakeholders.

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