Experts believe that a more holistic crypto ecosystem, especially one that is more AML-centric, is needed to help prevent the spread of crypto scams in 2020.
Per a new report released by digital-asset intelligence firm CipherTrace on June 2, the value of ill-gotten funds siphoned through cryptocurrency crimes over the first five months of the year stands at a whopping $1.4 billion, thus making 2020 a potentially active year in regard to cryptocurrency-related thefts, hacks and fraud.
The report goes on to state that if things continue at the same rate, the total volume of stolen crypto for 2020 has the potential to get close to reaching the $4.5-billion mark set in 2019. Criminals appear to be capitalizing on the ongoing COVID-19 pandemic to target unsuspecting individuals by luring them in via a variety of crypto-related phishing campaigns, ransomware and darknet marketplace fraud.
Additionally, out of the multiple scams that have been accounted for this year, many of them have reportedly made use of email campaigns impersonating various coronavirus-related official groups — 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.
Lastly, CipherTrace officials claim that of the $1.36 billion in crypto stolen so far this year, 98% of the total value — nearly $1.3 billion — can be attributed to fraud and misappropriation rather than to hacks and direct thefts.
Scammers have continued to evolve their methodologies
To gain a better understanding of where the market seems to be heading in the coming months and years, particularly when it comes to crypto crime, Cointelegraph spoke to John Jefferies, the chief marketing officer and chief financial analyst at CipherTrace. In his view, while it is nearly impossible to predict with any certainty how trends related to cryptocurrency theft and fraud will evolve this year, it is possible that by the time the year comes to a close, the amount of funds netted by criminals may exceed the expectations of the report, betting 2019’s $4.5 billion figure.
Further elaborating on the subject, Jefferies stated that the largest contributor to this year’s crypto crime total has been Wotoken’s alleged billion-dollar Ponzi scheme that emerged from China. Furthermore, he is concerned in the coming months about exit scams by smaller virtual asset service providers, or VASPs, that that are struggling financially, adding:
“Retail investors should be wary of any company that uses hyperbolic statements and promises of extraordinary returns to lure them into participating. If WoToken had been required by regulatory agencies to provide detailed investment prospectus and audited financial statements, they wouldn’t have been able to launch their scheme and fool more than 700,000 victims. Many VASPs have dramatically improved their security posture, making it harder for hackers to steal from the platforms themselves.”
An even bleaker picture was painted by Pawel Aleksander, the co-founder and chief information officer of CoinFirm — a blockchain analytics company. He told Cointelegraph that as per his company’s own research and analysis, the volume of crypto funds stolen within the first quarter of 2020 may actually be closer to the $2 billion mark, highlighting:
“Knowing the amounts related to the various fraud happening as a whole has its importance but the most important aspect is addressing 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, an increasing number of people have started to spend more time in front of their computer and smartphone screens. Naturally, scammers have recognized this fact and are trying to seize this opportunity by devising novel ploys — promising high returns on various crypto-related offerings such as binary options, trust trading, etc. — to lure in unsuspecting individuals.
Commenting on the issue of how companies can best limit the spread of crypto-related scams, Aleksander stated that despite most social media platforms and messengers attempting to come down more seriously and limit such nefarious schemes, there are still many challenges that have yet to be tackled successfully. In his view, a balanced ecosystem is required, in which Anti-Money Laundering procedures can be democratized and users are given a voice:
“This can happen by achieving a synergy between AML, fraud investigations and an open data ecosystem that takes the security of crypto financial markets to a level never seen before or even thought possible in traditional finance.”
In this regard, he believes that a threefold solution is needed — i.e., one that is based on an AML technological platform that enables institutions to verify the risk of blockchain transaction counterparties and meet their regulatory obligations. Not only that, but the platform should also have the capability to facilitate end-to-end investigations in cases where funds are reported missing as well as incentivize the reporting of suspicious activities. Aleksander closed out by saying: “If the industry collectively adopts such solutions and processes, the capability of such scams of not only being successful but being able to take advantage of the stolen funds will become severely limited.”
A similar point of view is shared by Jefferies, who also believes that banks, VASPs and other money service businesses can safeguard themselves against bad actors that are utilizing their platforms and payment networks to launder money as well as engage in other illegal activities by deploying effective AML measures.
How do Bitcoin ATMs fit into all of this?
A striking aspect of CipherTrace’s above-mentioned report involves the “exponential” rise of funds being sent to high-risk exchanges from United States-based Bitcoin ATMs rather than lower-risk entities such as established crypto exchanges. This has prompted experts to believe that BATMs may be at a greater risk of being used to launder money, especially given the preponderance of funds sent from them overseas, potentially to jurisdictions with lax AML and Know Your Customer policies.
Providing his insights on the matter, Jefferies stated that part of the reason for the increasing use of BATMs by money launderers, such as in the Kunal Kalra case, is their increasing ubiquity across the U.S. He added:
“Even in spite of the growing availability of privacy coins like Monero and Zcash, criminals continue to use Bitcoin because of the abundance of Bitcoin-to-fiat offramps. Banks and money service businesses should pay attention to high-risk transactions originating from BATMs that lack proper AML compliance.”
Bitcoin cleaner than fiat?
Even though the crypto sector is still routinely maligned by members of the mainstream media that claim that digital currencies are still, by and large, being used by bad actors for nefarious reasons — such as terrorist financing, drug trade, etc. — Jefferies told Cointelegraph that as per his company’s latest research, cryptocurrencies are considerably cleaner than their reputation would suggest:
“The reality is that criminal use of Bitcoin and other cryptocurrencies is very low, less than 0.2% of the funds accepted by exchanges is directly from criminal sources.”