Crypto Crime on the Rise – Good Odds of 2020 Becoming a Record-Breaker


According to a new report released by digital asset intelligence firm CipherTrace on June 2, the value of ill-gotten funds siphoned off by cryptocurrency crimes in the first five months of the year is a whopping $1.4 billion, making 2020 a potentially active year in terms of cryptocurrency thefts, hacks and fraud.

The report goes on to say that the total volume of cryptocurrencies stolen for 2020 has the potential to reach the $4.5 billion mark from 2019 if it continues. Criminals appear to be taking advantage of the ongoing COVID-19 pandemic to target unsuspecting individuals by luring them with a variety of crypto-related phishing campaigns, ransomware, and darknet marketplace scams.

Of the numerous scams uncovered this year, many reportedly used email campaigns posing as various official groups related to the coronavirus – such as the World Health Organization, the Red Cross and the Centers for Disease Control and Prevention – to solicit payments and donations in the form of cryptocurrency.

Related: Public Service Announcement: beware of scammers posing as Cointelegraph journalists

Finally, CipherTrace officials claim that of the $1.36 billion in cryptocurrency stolen so far this year, 98 percent of the total value – nearly $1.3 billion – is due to fraud and embezzlement rather than hacks and outright thefts.

Fraudsters have continued to evolve their methods

To get a better understanding of where the market is headed in the coming months and years, especially when it comes to cryptocrime, Cointelegraph spoke with John Jefferies, chief marketing officer and chief financial analyst at CipherTrace. According to him, while it is almost impossible to predict with certainty how cryptocurrency theft and fraud trends will evolve this year, it is possible that by the end of the year, funds captured by criminals will exceed the report’s expectations and set the $4.5 billion figure for 2019.

Speaking further on the subject, Jefferies explained that the biggest contributor to this year’s crypto-crime total was Wotoken’s alleged billion-dollar Ponzi scheme, which came from China. In addition, he is concerned about exit scams from smaller Virtual Asset Service Providers (VASPs) in financial trouble in the coming months, adding:

“Retail investors should be wary of any company that lures them to participate with exaggerated statements and promises of extraordinary returns. Had WoToken been required by regulators to provide a detailed investment prospectus and audited financial statements, the company would not have been able to launch its scheme and deceive more than 700,000 victims. Many VASPs have dramatically improved their security measures, making it harder for hackers to steal from the platforms themselves.”

Pawel Aleksander, the co-founder and chief information officer of CoinFirm – a blockchain analytics company – painted an even bleaker picture. He told Cointelegraph that according to his company’s own research and analysis, the volume of cryptocurrency stolen in the first quarter of 2020 could actually be closer to the $2 billion mark, stressing:

“Knowing the amounts related to the various frauds as a whole has its importance, but the most important aspect is how to solve them and providing entities with the tools and solutions to do so.”

The pandemic has made things worse

As a result of the ongoing coronavirus situation, more and more people have started spending more time in front of their computer and smartphone screens. Of course, scammers have realized this fact and are trying to take advantage of this opportunity by coming up with novel tricks – promising high returns on various crypto-related offers such as binary options, trust trading, etc. – to lure unsuspecting individuals.

Related: On the Darknet Side: crypto’s role as a means of exchange

In terms of how businesses can best limit the spread of crypto-related scams, Aleksander explained that despite the efforts of most social media platforms and messengers to limit such nefarious schemes, there are still many challenges that have yet to be successfully overcome. He believes a balanced ecosystem is needed where anti-money laundering practices can be democratized and users are given a voice:

“This can be done by achieving a synergy between AML, fraud investigations, and an open data ecosystem that elevates the security of crypto financial markets to a level never before seen or even thought possible in the traditional financial world.”

In this regard, he believes that a three-pronged solution is needed – namely, one that is based on a technological AML platform that enables institutions to verify the risk of blockchain transaction partners and meet their regulatory obligations. Not only that, but the platform should also have the ability to facilitate end-to-end investigations in cases where funds are reported missing, as well as incentivize the reporting of suspicious activity. Aleksander concluded by saying, “If the industry collectively adopts such solutions and processes, the ability of such frauds to not only succeed but also take advantage of the stolen funds will be greatly reduced.”

A similar point of view is made by Jefferies, who also believes that by employing effective AML measures, banks, VASPs and other money services providers can protect themselves from bad actors using their platforms and payment networks to launder money and engage in other illegal activities.

How do bitcoin ATMs fit into all of this?

One striking aspect of the CipherTrace report mentioned above is the “exponential” increase in funds sent to high-risk exchanges by U.S.-based Bitcoin ATMs, rather than less risky entities like established crypto exchanges. This has led experts to believe that BATMs are at greater risk of being used to launder money, especially given the overwhelming number of funds sent from them overseas, potentially to countries with lax AML and Know Your Customer policies.

Commenting on the issue, Jefferies said that part of the reason for the increasing use of BATMs by money launderers, as in the Kunal Kalra case, is their increasing prevalence in the United States:

“Despite the increasing availability of privacy coins like Monero and Zcash, criminals continue to use bitcoin because there is an abundance of bitcoin-to-fiat offrames. Banks and money services should be on the lookout for high-risk transactions originating from BATMs that lack proper AML compliance.”

Bitcoin cleaner than fiat?

Although the crypto sector is still routinely vilified by members of the mainstream media who claim that digital currencies, by and large, are still being used by bad actors for nefarious purposes – such as terrorist financing, drug trafficking, etc. – Jefferies told Cointelegraph that cryptocurrencies are much cleaner than their reputation suggests, according to his firm’s latest research:

“The reality is that criminal use of Bitcoin and other cryptocurrencies is very low, less than 0.2% of funds accepted by exchanges come directly from criminal sources.”

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