The Directorate of Enforcement (ED) has uncovered a significant scam involving digital loan applications operated by two Chinese nationals, Xiao Ya Mao and Wu Yuanlun, in Tamil Nadu. The accused were arrested on November 13, 2024, under the Prevention of Money Laundering Act (PMLA), 2002, and later sent to judicial custody.
The scam targeted individuals in urgent need of money by offering short-term loans through mobile applications. However, these apps exploited borrowers by charging exorbitant interest rates, harassing them for repayment, and misusing their personal data.
How the Scam Worked:
Digital Loan Apps:
- The accused launched mobile loan applications through companies named M/s Toucolor Technologies Pvt. Ltd. and M/s Truekindle Technology Pvt. Ltd., which were set up in 2020.
- Borrowers could easily download these apps and apply for small, short-term loans ranging between ₹5,000 and ₹10,000.
Data Exploitation:
To access the loan, borrowers were required to:
- Share personal information, including identity documents (KYC), photos, and bank details.
- Grant access to their phone’s contact list, photos, and videos.
This allowed the scammers to gather sensitive personal data, which they later misused for harassment and extortion.
High Fees and Exploitative Terms:
- Once the loan was approved, 20–30% of the amount was deducted upfront as processing fees.
- Loans were offered for very short tenures of 7–15 days, and borrowers were charged exorbitant interest rates.
Debt Trap and Harassment:
- Borrowers who failed to repay on time faced severe harassment, including:
- Abusive calls: Scammers contacted borrowers, their relatives, and friends, using foul and threatening language.
- Public humiliation: They created WhatsApp groups, shared borrowers’ photos, and posted defamatory and morphed obscene images. Borrowers were blackmailed with threats of publishing these images on social media.
- Debt cycle: Borrowers were pressured to take loans from other apps to repay the previous ones, pushing them into a vicious debt trap.
Financial Operations Behind the Scam:
Dummy Companies and Directors:
- The accused Chinese nationals registered two companies, M/s Toucolor Technologies and M/s Truekindle Technology, and listed Indian employees as dummy directors.
- These directors had no actual control over the business, which was entirely operated by the Chinese nationals.
Use of Cryptocurrency:
- The scammers used cryptocurrency wallets on platforms like WazirX to hide their earnings:
- They transferred funds worth ₹3.54 crore into cryptocurrency wallets between August 2020 and December 2020.
- The loan repayments, totaling ₹5.02 crore, were converted into cryptocurrency and transferred to wallets outside India, accessed from Hong Kong.
- This method allowed them to launder money internationally, making it difficult to trace.
Loan Disbursal and Recovery:
- The companies had disbursed loans worth ₹49.2 crore and recovered the same amount through harassment, threats, and extortion.
- Funds from borrowers were initially collected in Indian bank accounts and then funneled into cryptocurrency wallets to evade detection.
ED’s Investigation and Actions:
The Enforcement Directorate launched an investigation based on multiple complaints filed by borrowers, leading to the registration of FIRs under various laws, including:
- Indian Penal Code (IPC), 1860: For harassment, threats, and extortion.
- Information Technology Act, 2002: For misuse of digital platforms.
- Foreigners Act, 1946: Since foreign nationals were involved.
Findings:
- Borrowers’ sensitive data was exploited to intimidate and extort them.
- The scam involved money laundering through cryptocurrencies, with significant funds being siphoned off to other countries.
- IP logs confirmed that the cryptocurrency wallets were accessed from Hong Kong.
Action Taken:
Arrests:
- Xiao Ya Mao and Wu Yuanlun were arrested on November 13, 2024.
- Initially, they were sent to ED custody for three days and later remanded to judicial custody until November 29, 2024.
Search Operations:
- ED conducted raids across multiple locations in Delhi NCR, Chandigarh, Haryana, Punjab, and Gujarat.
Freezing of Bank Accounts:
- The ED froze 96 bank accounts containing ₹19.43 crore linked to the scam.
Key Legal Implications:
The accused have been charged under the Prevention of Money Laundering Act (PMLA), 2002, which deals with cases of money laundering and financial fraud. The scam also involves:
- Cybercrime laws for misuse of personal data.
- International financial crimes due to cross-border money laundering via cryptocurrencies.
Lessons from the Incident:
For Borrowers:
- Be cautious when using unverified loan apps.
- Avoid sharing sensitive personal data, such as access to your phone’s contacts, photos, and videos.
For Regulatory Authorities:
- Strengthen oversight of digital lending platforms and enforce stricter compliance measures.
- Monitor the use of cryptocurrencies in financial transactions to prevent money laundering.
For the Public:
- Report any incidents of harassment or fraud immediately to the authorities.
- Educate yourself about the risks of using unregulated digital financial services.
Conclusion:
This case underscores the growing risks of unregulated digital loan platforms and highlights the misuse of cryptocurrencies for laundering money. The ED’s swift action demonstrates the importance of cybercrime vigilance and strict enforcement of financial laws. It also serves as a warning to the public to be vigilant when using digital lending apps, which may appear convenient but can lead to financial exploitation and mental harassment.
