How Dubai’s Lax Regulations Are Attracting Crypto Scammers Worldwide

Dubai Becoming a Hub for Multi-Billion Dollar Frauds

The UAE, particularly Dubai, is increasingly being identified as a hotspot for massive cryptocurrency scams.

While the global crypto market has faced numerous high-profile collapses, Dubai’s reputation has been growing for housing schemes that defraud investors of billions.

Many of these operations present themselves as legitimate crypto ventures, but authorities, particularly in the US, have been sounding the alarm about the scale and sophistication of these frauds.

Sam Lee and HyperVerse: A $2 Billion Ponzi Scheme

One of the most notorious scams to emerge from Dubai is HyperVerse, a Ponzi scheme orchestrated by Sam Lee, a former Australian tech entrepreneur.

US authorities have charged Lee with securities and wire fraud for his role in the $2 billion fraud.

Lee, who relocated to Dubai in 2021, co-founded HyperVerse, which promised daily returns of up to 1% through blockchain-based strategies.

However, investigators determined that it was a classic Ponzi scheme, relying on new investments to pay returns to earlier backers rather than generating legitimate profits.

In an interview, Lee denied the charges, stating,

“Any misuse of funds must have been attributed to another individual.”

He further claimed that he was merely a “tech provider” and not the mastermind behind HyperVerse.

Despite his assertions, US authorities remain firm in their stance that the company was nothing more than a fraudulent operation.

Between 2021 and early 2024, the Federal Trade Commission (FTC) received 200 complaints about HyperVerse, with investors reporting losses of up to $200,000.

Among the victims was 67-year-old Rupert Honywood, who sold his property and sent £130,000 ($165,000) to Lee’s organisation, only to see the money disappear.

A Pattern of Fraudulent Schemes: OneCoin, Bitconnect, and GainBitcoin

HyperVerse is not an isolated case.

Over the years, Dubai has been the epicentre for several high-profile scams, including OneCoin, Bitconnect, and GainBitcoin.

OneCoin, a scheme that promised huge returns from a non-existent cryptocurrency, defrauded investors of approximately $4.4 billion.

Ruja Ignatova, the mastermind behind OneCoin, operated the scheme out of Dubai between 2015 and 2017.

OneCoin’s founder Ruja Ignatova, also known as Cryptoqueen

She remains on the FBI’s most-wanted list, and one of her co-founders has already pleaded guilty to fraud.

Bitconnect, another infamous Ponzi scheme, raised over $1 billion before collapsing in 2018.

Similarly, GainBitcoin, which offered Bitcoin mining contracts through a multi-level marketing structure, caused losses estimated at $2.7 billion.

These cases highlight the growing trend of large-scale crypto frauds emerging from Dubai, with scammers exploiting the region’s lax regulatory environment.

The UAE's Regulatory Blindspot: Crypto and Scams Go Hand in Hand

Dubai has long been a magnet for crypto companies, attracting innovators with its business-friendly environment.

However, this permissiveness has also opened the door for fraudsters.

The country’s weak regulatory framework has allowed scammers to thrive, operating with little oversight.

Despite attempts to clean up its image, Dubai’s crypto regulations remain far from robust, with many schemes continuing to operate in the shadows.

Dubai’s regulatory body, the Virtual Assets Regulatory Authority (VARA), has taken steps to address the issue, including levying a $2.7 million fine against the unlicensed crypto exchange OPNX.

However, critics argue that the UAE has done little to curb fraud in the crypto sector.

While VARA has worked to secure licences for exchanges like Binance, other countries have moved to restrict the exchange’s operations due to concerns over money laundering and sanctions violations.

A New Wave of Crypto Fraudsters and UAE’s Role in Protecting Them

Some experts claim that Dubai’s regulatory authorities are more focused on the economic potential of the crypto industry than on preventing fraud.

This has made the UAE a safe haven for scammers.

For instance, Josip Heit, the alleged mastermind behind a $1 billion crypto scheme, managed to settle fraud charges with US authorities without admitting guilt.

Josip Heit founded GSB Group, a shell company involved in scamming and misleading investors, violating securities laws, and inflicting significant public harm.

Meanwhile, Vitaliy Dubinin, a key figure in a $200 million NFT scam, continues to promote his operation from Dubai’s luxury rooftops.

Despite these ongoing scandals, Dubai has worked to improve its standing with international regulators.

In 2022, the Financial Action Task Force (FATF) placed the UAE on its “grey list” due to concerns over illicit financial activities.

Since then, the UAE has worked to be removed from the list, and in February 2024, the FATF acknowledged its efforts.

However, Transparency International, an anti-corruption group, claimed that little had been done to curb crypto fraud during this period.

Authorities in Dubai may have removed the country from the FATF’s “grey list,” but the situation remains far from resolved.

Experts, like former IRS investigator Utzke, argue that Dubai continues to prioritise economic growth over stringent regulatory enforcement.

"They want to appear tough on crime," Utzke said, "but they also want to be at the forefront of innovation."

Whether these ambitions will lead to meaningful change in the crypto landscape remains to be seen.