Cryptocurrency Exchange Offences
What Are Cryptocurrency Exchange Offences
Cryptocurrency exchange offences refer to illegal acts committed through or involving cryptocurrency exchanges — platforms that allow individuals to buy, sell, or trade cryptocurrencies like Bitcoin, Ethereum, etc.
🔍 Common Types of Offences:
| Type of Offence | Description |
|---|---|
| Money Laundering | Using crypto exchanges to convert illegal proceeds into clean assets. |
| Fraud and Scams | Fake exchanges or Ponzi schemes using crypto as bait. |
| Market Manipulation | Wash trading, spoofing, and pump-and-dump schemes. |
| Unauthorized Trading | Operating without regulatory licenses. |
| Hacking & Theft | Breach of exchanges leading to loss of customer assets. |
| Violation of KYC/AML Laws | Not following Know Your Customer and Anti-Money Laundering regulations. |
⚖️ Legal Framework (India & International)
🏛️ India:
Prevention of Money Laundering Act (PMLA), 2002
Information Technology Act, 2000
Indian Penal Code (IPC) – Fraud, Cheating, Criminal Breach of Trust
RBI Guidelines (though crypto is not legal tender, exchanges can operate under certain conditions)
FEMA (in case of cross-border transactions)
🌍 International:
U.S. SEC & CFTC Regulations
FATF Guidelines for Virtual Assets
EU’s MiCA Regulation (Markets in Crypto Assets)
📚 Detailed Case Laws on Cryptocurrency Exchange Offences
1. ED v. WazirX (India, 2022–2023)
Facts:
Enforcement Directorate (ED) investigated WazirX, a major Indian crypto exchange, for alleged violation of FEMA and PMLA.
Allegations included enabling Chinese loan app fraudsters to launder over ₹2,700 crore through crypto.
Legal Issues:
Lack of proper KYC/AML checks.
Movement of crypto assets between WazirX and Binance with no proper documentation.
Outcome:
ED issued show-cause notices and froze assets.
WazirX claimed it had no control over users' wallets, leading to debates over custodial vs non-custodial responsibility.
Significance:
First major Indian crypto exchange probe.
Triggered stricter KYC enforcement in Indian crypto platforms.
2. RBI Circular Challenge – Internet and Mobile Association of India v. RBI (2020)
Facts:
RBI had banned banks from offering services to crypto exchanges (April 2018 circular).
The Internet and Mobile Association challenged it in the Supreme Court.
Court’s Judgment:
The Supreme Court quashed the RBI ban, stating it was disproportionate and infringed on the right to trade under Article 19(1)(g).
Relevance:
Although not a criminal offence case, it clarified the legal status of crypto exchanges, allowing them to operate, but under scrutiny.
3. Thodex Exchange Scam (Turkey, 2021)
Facts:
Thodex, a Turkish exchange, suddenly halted withdrawals.
The CEO fled the country with approximately $2 billion in investor funds.
Over 400,000 users were affected.
Legal Action:
Interpol issued a Red Notice.
CEO Faruk Fatih Özer was arrested in Albania in 2022.
He was extradited to Turkey and sentenced in 2023.
Offences:
Fraud, theft, and operating without authorization.
Significance:
Showed the dangers of unregulated exchanges and the need for cross-border enforcement.
4. Mt. Gox Exchange Collapse (Japan, 2014)
Facts:
One of the earliest and biggest exchange failures.
Over 850,000 Bitcoins (worth billions today) were lost due to alleged hacking and internal fraud.
Legal Proceedings:
CEO Mark Karpelès was arrested and charged with embezzlement and data manipulation.
He was convicted in 2019 for falsifying data but acquitted of embezzlement.
Importance:
Led to Japan regulating crypto exchanges under FSA (Financial Services Agency).
5. Bitfinex/Tether Money Laundering Case (USA, 2021)
Facts:
Bitfinex and Tether were accused by the New York Attorney General of covering up $850 million in losses.
Allegedly used Tether (a stablecoin) to mislead investors and hide financial gaps.
Legal Outcome:
Bitfinex agreed to pay $18.5 million and cease trading in New York.
Required to submit regular transparency reports.
Legal Issues:
Misrepresentation, money laundering, and market manipulation.
6. Coincheck Hack (Japan, 2018)
Facts:
Hackers stole over $530 million worth of NEM tokens from Coincheck.
Lax security protocols were blamed (no cold storage, poor encryption).
Aftermath:
Japan’s FSA ordered enhanced regulations and audits for crypto exchanges.
Coincheck was later acquired by Monex Group.
Key Offences:
Not a direct offence by the exchange, but highlighted criminal negligence and duty of care breach.
🧾 Summary Table
| Case | Country | Key Offence | Legal Outcome |
|---|---|---|---|
| ED v. WazirX | India | Money laundering, FEMA violation | Assets frozen, investigation ongoing |
| IAMAI v. RBI | India | Regulatory overreach (not criminal) | SC allowed crypto trade via banks |
| Thodex Scam | Turkey | Fraud, exit scam | CEO sentenced, international manhunt |
| Mt. Gox | Japan | Embezzlement, hacking | CEO convicted for data falsification |
| Bitfinex/Tether | USA | Misrepresentation, AML | $18.5M settlement, operational ban in NY |
| Coincheck Hack | Japan | Criminal negligence | Led to stronger crypto regulations |
⚖️ Conclusion:
Cryptocurrency exchange offences are increasingly coming under global scrutiny. These offences range from outright fraud and money laundering to regulatory non-compliance and security negligence. Courts and regulators across the world are now moving to:
Establish clear licensing norms for exchanges.
Enforce strict AML/KYC obligations.
Punish fraud and misrepresentation in crypto markets.
Create cross-border cooperation mechanisms to handle global scams.
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