Cryptocurrency Scams and Authorised Push Payment Fraud

In 2020, Government-backed watchdog, the Financial Ombudsman Service (FOS) carried out an investigation following a complaint involving scammers who had targeted aspiring crypto investors through online advertising.

One such investor was Mr O, who initially filled in an online form expressing an interest in cryptocurrency investments. He was contacted by a representative from company C and paid out £2500 from his HSBC bank account in May 2018. Further payments were made over a 5-month period, with Mr O investing a total of £6200 in what he believed to be a cryptocurrency ‘portfolio’. The investment company promised to make the investments on Mr O’s behalf and set up online access to a platform where he could see how his investments were performing.

Company C tried to entice even more investment from Mr O, which he declined. Access to the platform was then blocked and any attempts by Mr O to contact the company by email or telephone were unsuccessful. He realised that something was wrong and contacted his bank, HSBC, to see if they could recover his money.

HSBC refused to give Mr O his money back, stating that Mr O had authorised the payments and they were simply acting on his instructions. Where the scammer gains the victim’s confidence and trust, as the Cryptocurrency company did in this case, then this is known as Authorised Push Payment (APP) fraud. Believing the transactions are genuine, the money is often lost before any alarm bells ring and the victim may be too embarrassed to do anything about it. Also, as these payments are usually made abroad it is often impossible to trace or recover what has been lost.

Mr O was unhappy with HSBC’s decision not to return the money and escalated his complaint to FOS.

FOS looked at how HSBC had handled the 4 payments from Mr O’s bank account. They discovered that the first payment went to a company specialising in pre-paid cards, not directly to company C. This method of obtaining money is typically seen in fraud cases and should have been a clear red flag for the bank. Given the unusually large and uncharacteristic sums of money being transferred from Mr O’s account, HSBC should have initiated a fraud prevention process to protect Mr O. They could have monitored his account, put a hold on any payments and contacted him to ensure he knew where the money was going and why.

Following its investigation, FOS concluded that HSBC could have done much more to protect Mr O’s money. They ordered that the money be refunded to his account, along with interest at 8% and compensation payment for the distress and inconvenience caused.

Contact the police and also your bank as a matter of urgency. You can also report any suspected scamming activity to Action Fraud, the National Fraud and Cyber Crime Reporting Centre. If you have lost money, that may lead to a criminal investigation by the police. If a criminal prosecution is successful, the court can award compensation. But this is not always possible, particularly if the scammer is overseas or has no assets which can be used to pay compensation. In addition, you may have the basis of a complaint and claim against your bank if you feel that they did not do enough to protect your account.

Head of professional negligence at TLW Solicitors, Sarah Spruce, said:

“Many victims of crypto fraud are unaware that banks have a duty to apply due diligence when looking after their customers’ accounts. They should carry out robust security checks and highlight and act on any ‘red flags’ such as vulnerable customers and unusual or out of character transaction activity.

On the positive side, more and more banks are blocking payments to cryptocurrency platforms in an attempt to clamp down on Authorised Push Payment (APP) fraud.”