Account Freeze: Crypto dealer turns detective to clear his name in scam, Kerala police ignore evidence

Kozhikode: Michael M K* (30), a crypto trader from Palakkad, has been in hiding since February. He is not running from the law. He is evading his relatives from whom he had generously borrowed to trade in cryptocurrencies.

But the cyber police of Kerala and Telangana threw a spanner in his works by freezing his bank accounts with around Rs 8 lakh. They accused him of accepting tainted rupees and selling cryptocurrencies.

Online scammers often convert their ill-gotten rupees into cryptocurrencies. But Indian cyber police make a U-turn and follow the rupee held by honest traders, said Abdul Jabbar V H, a cyber activist who represents several victims of indiscriminate bank account freezes in Kerala.

It is a misconception that crypto trading is opaque. Cryptocurrencies are digital assets and their trading is transparent. "Crypto exchanges such as Binance have made it mandatory for traders to submit their KYC before they can buy or sell coins," he said. So if fraudsters buy cryptocurrency from a genuine seller using their ill-gotten money, police have access to their photographs, PAN, Aadhaar, bank account details, mobile number, and email ID. "With all these documents and details, if the police cannot catch the online fraudsters, it is a telling commentary on their incompetence or they just don't want to," said Jabbar, a native of Malappuram.

The cases against Michael (*name changed on request and to protect identities) expose the lack of coordination among India's cyber crime investigators and possibly their reluctance to follow the trail of cryptocurrencies. The unhelpful police also turned Michael and Jabbar into detectives.

Read Part 1 of the Freeze and Fleeze Scam Series here: Freeze, you are being demonetised by police, banks

Crypto dealer going after scammers

On February 13, Smitha Janet* from Thiruvananthapuram filed a complaint with the National Cyber Crime Reporting Portal saying a racket of three persons duped her of Rs 1.3 lakh. The racket lured her into a scam played out on Telegram by sending her a link to her WhatsApp number.

Janet was initially required to pay a small amount and complete a small task such as liking a Youtube video. On completing the task, the fraudsters would return her a little more money than what she gave them. At the next level, she had to pay more to participate in the game. Again, she got more than she gave them.

This continued till her confidence in the fraudsters grew and she ended up losing Rs 1.3 lakh.

In her complaint, Janet named three suspects and gave their phone numbers: Ishant Kaushish (93025 96279), Kushi (78997 50186), and Kavitha Sharma (79006 63669). She also shared the UPI numbers to which she transferred the money.

The National Portal transferred the case to the Cybercrime Police of Thiruvananthapuram. During the investigation, police found that one bank account linked to the scam had transferred Rs 5 lakh to Michael's ICICI Bank account in Palakkad on February 11.

The same day, Michael transferred Rs 1.3 lakh to the Union Bank of India account of his friend Nagma Fahisa* and around Rs 1 lakh each to three other accounts. At the end of that day, Michael's account had Rs 70,000.

The cyber police chose to freeze the accounts of Michael and Fahisa. They marked the Rs 70,000 in Michael's account and Rs 60,500 in Fahisa's account as a disputed amount or lien. Jabbar said he did not know how the police decided the proportion of the disputed amount in the accounts.

Nevertheless, when Michael came to know his ICICI Bank account was frozen, he produced evidence of him selling a crypto amount worth Rs 5 lakh to one Pasad Rakesh Bhawanji on the Binance platform.

But the cyber police would not have anything to do with cryptocurrency and ignored the important evidence.

With little help from the Thiruvananthapuram cyber police, Michael and Jabbar contacted Janet, the original complainant, and got the names and phone numbers of the suspect. They kept trawling the internet for the suspects.

"On the internet, I came across phone numbers which were marked as spam. I also found their usernames on Telegram," said Jabbar.

On March 4, the hard-nosed trawling would pay dividends. Jabbar came across a news report on The Times of India that the Ahmedabad Cybercrime police arrested three persons for duping a 35-year-old Chandkheda man of nearly Rs 17 lakh by using the same scam model.

The accused were from Rajasthan and their names were Rajkumar Yadav, Farooq Hussain, and Imran Mansuri. The names were not what Janet had mentioned in her complaint. But Jabbar had a hunch and he downloaded the FIR in connection with the case and he was stunned.

In the FIR filed by the Chandkheda man, he had mentioned Ishant Kaushish and Khushi, and their phone numbers. "They matched Janet's complaint. What I found interesting was the scammers were duping Janet and the Chandkheda man around the same time," said Jabbar.

An excited Jabbar rushed to Thiruvananthapuram Cybercrime Police station with his discovery. "The officers were not only cold towards my findings, they did not even know that the suspect in their case was arrested by Ahmedabad cybercrime police. So much for the national cybercrime portal," he said.

The Thiruvananthapuram police also refused to lift the freeze on Michael's account.

Crypto traders are soft and easy targets

Abdulla Varikkodan (42), a manager at an American candy company in Dubai, is bitterly disappointed with the cybercrime investigators in India. Despite being overcareful with his crypto trading, Indian cyber police on Friday flagged Rs 7,256 that reached his wife's ICICI Bank account at Malappuram. "I don't know what more precautions I should take. Their mode of the investigation will make people wary of digital transactions," said a frustrated Abdulla.

Nearly four months ago, Binance, the world's largest cryptocurrency exchange, froze Abdulla's account with the platform after a Tamil Nadu-based crypto trader accused him of using 'tainted' Rs 70,000 for trading.

Abdulla was holding stablecoin (USDT) worth Rs 35 lakh on the platform when his account was frozen. He had built the savings by investing half of his salary in cryptocurrencies every month. "Now I am cut off from my money for a crime I had no role," he told Onmanorama on a call from Dubai.

Back home, Federal Bank's Malappuram Branch marked Rs 70,000 as the disputed amount (also called lien).

Cyber police officers said they would follow the dirty money and withhold the disputed amount in whoever's accounts it is found, till the investigation is completed.

But that mode of investigation is wrecking the lives of many as police often freeze anywhere between 50 to 100 and more accounts over one cyber complaint. In several cases, the police lift the freeze after taking bribes.

Though cryptocurrencies are traceable, police follow only currencies issued by governments, said several crypto traders whose bank accounts were frozen.

How Abdulla's crypto world crumbled

On December 8, 2022, friend Mohammed transferred Rs 70,000 to Abdulla Varikkodan's account in Federal Bank's Malappuram Branch. The same day, he used the money to buy USDT worth Rs 70,000 from the Tamil Nadu-based seller on the Binance crypto exchange.

USDT or Tether is a stablecoin or digital coin backed by a stable asset (in this case US dollar). Crypto traders use stablecoins to stay in the cryptosystem and buy and sell any type of cryptocurrency on any platform. Stablecoin's value will be almost as same as the asset it is pegged to. So, one dollar can be exchanged for one token of Tether.

One week after the transaction, the Tamil Nadu-based crypto trader's bank account was frozen because the Uttar Pradesh cybercrime police found that the Rs 70,000 he received from Abdulla was part of an online fraud.

He then filed a complaint with Binance saying Abdulla used dirty money for trading. On December 14, Binance froze Abdulla's account with USDT 42,856 (approx Rs 35 lakh).

Abdulla said he got the money from his friend Mohammed, who got the money from crypto trading.

How accounts are frozen

Kerala cybercrime nodal officer Shaji Sugunan told Onmanorama that his cybercrime police team ensured that only the disputed amount or lien was withheld and the bank accounts were not frozen.

When an online financial fraud is reported on the National Cyber Crime Reporting Portal, it is forwarded to the state cyber team concerned. "We initiate the investigation and inform the bank primarily used to commit the crime," said the IPS officer.

The bank then tracks the movement of the money. The instruction is to withhold the lien not to freeze the account, he said.

If the primary bank finds that the proceeds of the alleged crime have been moved to accounts in other banks, it will update the information on the national portal. The banks mentioned by the primary bank will then pick up the trail and the tracking will go on till the last rupee involved is frozen, said Sugunan.

Banks can also directly inform the cybercrime police investigating the case. "We freeze the account or withhold the lien as directed by the police," said Amith Kumar, Deputy Vice-President of Federal Bank.

Even if an account is debit-frozen, banks debit their fees and fines.

If an account is named or involved in more than one or two cases, the investigating officer directs the banks to freeze the accounts.

Once the accounts are frozen, he will ask the recipients to explain the source of the money. "If they have a convincing answer, the freeze on the lien or the account will be lifted," said Sugunan.

'Not many crypto cases in Kerala'

When asked about the dead-end faced by investigators following cryptocurrencies, Sugunan said only a minuscule number of cases involving digital currencies are reported from Kerala.

He said his team monitored the banks' freezing activities and the cyber crimes every day. "If the frozen amount exceeded the lien amount, we identify the accounts and direct the banks to lift the freeze," he said.

But the reality is Kerala is no different from states in the north. A Madhya Pradesh college student, who is into cryptocurrencies, hired cyber crime lawyer Jiyas Jamal after his account was frozen at the direction of Palakkad Cyber Crime Police. "I contacted the Palakkad cyber crime team and they said they did not direct the bank to freeze the account. "I am moving the high court to find out who is responsible for freezing the accounts," he said.

This is the second of a three-part series on banks and police arbitrarily freezing accounts to investigate online frauds. 

Read Part 1 here: Freeze, you are being demonetised by police, banks
Read Part 3 here: Kerala Gramin Bank freezes school's account over Rajkot complaint after guardian pays fees of Rs 13,200