Understanding Ponzi Schemes, digital arrests and digital banking frauds

Dr Yumnam Oken Singh *

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Financial frauds have evolved with technology, leading to the rise of sophisticated scams such as Ponzi schemes and digital arrest frauds. These schemes exploit human greed, fear, and ignorance, often leaving victims financially and emotionally devastated.

While the digital arrest scam preys on fear, Ponzi schemes lure victims with the promise of high returns. Another fraud is the digital banking frauds involving fraudsters posing as bank officials and exploiting digital payment methods such as QR codes.

Ponzi Schemes

Ponzi schemes are fraudulent investment plans that promise high returns with little or no risk. Named after Charles Ponzi, who orchestrated such a scheme in the early 20th century, these scams operate by using funds from new investors to pay returns to earlier investors rather than generating legitimate profits.

In recent years, Manipur has witnessed multiple Ponzi scheme frauds. These elements misappropriated millions of rupees from unsuspecting investors, leading to financial ruin for many.

Another fraudulent financial entity, deceived investors by promising 3% monthly returns but instead siphoned funds into shell companies abroad. These scams function by enticing victims with lucrative offers, often masking illegal activities under the guise of financial enterprises.

It is essential to recognize that even the largest and most reputable banks in the country offer only around 6 to 8 percent annual interest on fixed deposits, which translates to approximately 0.5 to 0.7 percent per month.

This fundamental fact should alert individuals to the reality that any entity promising significantly higher returns—especially in the range of 2 to 3 percent per month—is undoubtedly fraudulent. Understanding this simple financial principle can help prevent countless people from being lured into scams that promise unrealistic gains.

The Rise of Digital Arrest Scams

Unlike Ponzi schemes, digital arrest scams manipulate victims through psychological intimidation. Fraudsters impersonate law enforcement officials and claim that the victim is under investigation for a crime. The scammers then coerce individuals into transferring money to avoid legal consequences.

Government data reveals that digital arrest scams are rapidly increasing. In 2022, 39,925 cases were recorded, resulting in a loss of Rs 91.14 crore. By 2024, the number had surged to 123,672 cases, causing financial losses of Rs 1,935.51 crore. These figures highlight the alarming scale and efficiency of cybercriminals in exploiting unsuspecting individuals.

These scams typically begin with a phone call, email, or message from someone posing as an official from a law enforcement agency such as the police, CBI, or Income Tax Department. The victim is informed of a fabricated crime they have supposedly committed—often related to money laundering, drug trafficking, pornography, or tax evasion. The scammer then pressures the victim into making an immediate payment to “settle the case” and avoid arrest.

A notable case involved a businessman in Mumbai who was contacted by a scammer claiming to be from the Cybercrime Division. The fraudster provided fake legal documents and demanded a transfer of Rs 25 lakh, which the victim complied with due to fear of immediate arrest.

Similarly, a Bengaluru-based tech professional received a call from someone impersonating an international law enforcement officer, falsely accusing him of being involved in a cybercrime case. The victim transferred over Rs 10 lakh before realizing it was a scam. The funny thing is that even journalists and well educated people fall victim to these frauds.

What makes these scams even more complex is the involvement of international cybercriminal networks. Many digital arrest scams are operated by foreign entities, often from call centres based in China, Dubai, Nigeria, and Southeast Asian countries.

These criminals hire local operatives to conduct scams in India, ensuring that the fraud appears legitimate. By using spoofed phone numbers, fake email domains, and deepfake technology, these fraudsters create highly convincing scenarios that make it difficult for victims to detect the fraud.

Digital Banking Frauds

Another prevalent category of financial scams involves fraudsters posing as bank officials and exploiting digital payment methods. These scams have become increasingly sophisticated, tricking people into sharing their banking credentials or making unintended transactions.

Scammers often call victims, pretending to be from their bank and offering to update or issue a new debit or credit card. They claim that the existing card will soon be deactivated and request OTPs (One-Time Passwords) or other banking credentials to complete the supposed process. However, the moment the victim shares the OTP, the scammer gains access to their bank account and siphons off funds.

To avoid such scams, individuals must remember that banks never ask for OTPs, PINs, or passwords over the phone. Any request for sensitive financial details should be considered a red flag, and verification should be done only through official bank contacts.

QR Code Scams: A Dangerous Trap

Another rising cyber fraud involves QR code scams. In these cases, scammers send QR codes via messages, emails, or online advertisements, claiming that scanning the code will help process a refund, verify an account, or complete a transaction. However, once scanned, the QR code can automatically deduct money from the victim’s account.

For instance, a man in Bengaluru attempting to sell furniture online was scammed when a buyer asked him to scan a QR code to receive payment. Instead, his account was debited by Rs 50,000. The QR code had been programmed to initiate a UPI payment rather than receive funds.

How to Avoid Falling Victim

Given the increasing prevalence of these frauds, individuals must :

1. Always confirm the legitimacy of financial institutions and investment opportunities before committing money.
2. Beware of investment scheme guaranteeing high returns with no risk, it is likely fraudulent.
3. Beware that legitimate law enforcement agencies do not demand payments over the phone or online.
4. Never share bank details, OTPs, or personal data with unknown individuals.
5. Report immediately, if scammed, to the Cyber Crime.
6. Never scan QR codes from unknown sources.
7. Always double-check the transaction details before authorizing a payment.
8. Use trusted payment apps and verify sender credentials before proceeding with any financial transaction.
9. Avoid sharing personal banking details with strangers or unverified contacts.

Modern scams, whether Ponzi schemes or digital arrest frauds, thrive on deception and human psychology. The promise of easy money often blinds individuals to the reality of financial risk. Understanding the nature of wealth creation and avoiding shortcuts is essential. Instead of chasing fraudulent schemes, individuals should focus on ethical investments, skill-building, and financial literacy.

The best defence against them is awareness, scepticism, and rational thinking. Controlling greed and maintaining ethical financial practices will not only safeguard individuals but also contribute to a society that values integrity over illusory wealth. By learning from past frauds and exercising caution, people can protect themselves from financial ruin and ensure a secure future.