Diana Clement: Don't fall for a cryptocurrency scam

Make sure the recipient is genuine before transferring cryptocurrency.

New Zealanders are losing hundreds of thousands of dollars to crypto scammers. Once a novelty, crypto has entered the mainstream and, sadly, scammers have latched onto it.

First of all, crypto scams use much the same modus operandi as regular scams. Just they go after crypto, not old money.

The scammers started by demanding ransoms in Bitcoin or other crypto to unlock computers. That was probably quite difficult for Joe and Jane Bloggs, who might have been completely bamboozled by the concept of digital currency that only exists electronically.

Now the scammers try to steal the crypto directly, and can be quite successful. Plenty of ordinary people hold crypto now, and it's harder to trace. You're mostly on your own when your crypto is stolen.

The Banking Ombudsman has heard cases from individuals claiming their banks should have done a better job warning them before they transferred money to crypto scammers. In one case released in July, a New Zealand bank suspended a transfer from a customer's account to a scammer. The customer then phoned the bank as requested. She claimed the transfers were legitimate and the money was released. The customer discovered weeks later that she'd been scammed and complained to the Ombudsman. After listening to the recorded calls where the customer was warned of the risks, the Ombudsman sided with the bank.

Banking Ombudsman Nicola Sladden says many victims are thoroughly convinced the crypto scammers are legitimate dealers.

The same happens with romance scammers, who think they've met their future life partner, who just happens to need some money transferred to them.

Janine Grainger, chief executive of New Zealand-based broker Easy Crypto, says scammers will convince their victims not to tell the bank what they are doing with the money.

"[Victims] are coached by scammers to lie. The most recent excuse I heard was 'if you tell your bank about this transaction, then your bank will try to discourage you from doing it because they want the commission and they want you to do the deal with us'.

"To be fair, I think the banks do a very good job of trying to stop people," says Grainger.

It's a difficult one because people should have agency and be the arbitrator of what they can do with their own money, she says. "They should also have the education and scepticism to be making good decisions and not being caught with scams."

Always check the legitimacy of any crypto platforms. Another case Sladden investigated involved a New Zealander who transferred funds to what appeared to be a New Zealand-based crypto trading platform. It was fake, a fact he could have discovered that by googling.

My experience is that new crypto investors sometimes think they're smarter than the average person. But even smart people can get caught up in scams.

Grainger is often contacted by people who have been caught in scams. As with traditional scams, once someone is caught, scammers have their contact details and will try again and again.

"They'll try to trick you with every scam in the book. One of the really common ones that we see is a recovery scam, where [victims are led to believe] this company overseas can help get it back." The victim is told they just need $10,000 or another figure to 'pay the tax' to recover their money. "Victims are vulnerable and susceptible to psychological manipulation."

While it's commonly thought that stolen crypto can't be recovered, courts in Britain and the United States have recently allowed scam victims to serve documents over the Blockchain, effectively freezing stolen crypto that had been tracked down. Those victims had lost millions and had money to pay crypto hunters to track down the funds and lawyers. They have in part recovered their money. It's unlikely the growing number of scammed Kiwi are going to be in that position any time soon.

• For more information about scams, visit Netsafe.org.nz or Cert.govt.nz