Sri Lanka Central Bank to Take Criminal Action Against Suspects of $47 Million Crypto Scam

The Central Bank of Sri Lanka is considering criminally prosecuting operators of a Sports Chain cryptocurrency scam that caused investors to lose $47 million.

Victims of the recent Sports Chain scam have turned to the Central Bank for recovery of funds. Sources revealed that those who invested in Sports Chain reportedly deposited jewellery, refinanced the property, and sold vehicles in the middle of runaway inflation. The economic turmoil that gripped Sri Lanka since August 2022 saw inflation reach 50.6% in February 2023, and since then has marginally reduced to 50.3%.

The Sri Lankan Financial Crimes Investigation Division (FCID) has apprehended nine suspects involved in money laundering and in connection with the scam. If found guilty, the suspects could be faced with a charge up to three times the amount of the funds stolen and will face a sentence between 5 to 20 years. The FCID has taken action against suspects by freezing their assets and bank accounts.

Lawyers of the accused claim that the suspects had no part in developing the app that facilitated fraudulent activity and could not be charged with money laundering. “Our clients were not the creators of this app. They had no control over it,” stated Tivank Ekaratne, legal counsel for the accused. The FCID’s case will be presented to the Colombo Magistrate’s Court in  August 2023.

According to the Chainalysis Account Executive for North and Latin America, crypto ponzi and pyramid schemes often manipulate immature regulatory frameworks and exchanges lacking robust anti-money laundering controls, especially in developing countries. 

Furthermore, Gemini’s 2022 Global State of Crypto Report revealed that currency devaluation and recession were key factors of crypto adoption. The combination of immature regulation and currency devaluation cause investors from countries such as Argentina, Brazil, and South Africa, to be more vulnerable and susceptible to fraud. In 2022 alone, crypto scams cost Argentian investors $11.8 million and  £7.3 million to Brazilian investors. 

CNV, the Argentine markets regulator has analysed forming a proof-of-solvency condition for crypto companies following the collapse of FTX. The Argentine watchdog also indicated in February 2023 that it would create a working group to reach a consensus on regulatory parameters. Argentines invested in the crypto sector through exchanges like FTX in the middle of near triple-digit inflation that swept the nation last year. 

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