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Crypto crime in the coming financial year

Author: Syedur Rahman  15 February 2024
3 min read

Syed Rahman considers what can be expected regarding cryptoasset-related wrongdoing.

In a matter of weeks, the 2024-25 financial year will be upon us. It is often a chance to look at the year that has passed and assess the one that is coming into view – and that is an opportunity that can be taken in relation to crypto.

The past 12 months or so have seen cryptocurrency steady itself after scandals and pricing turmoil. The optimistic among us could make an argument that 2024-25 could be a year of crypto growth. There does appear some basis for making the claim that market activity is on the rise with Bitcoin pushing all-time high value.

But what is arguably more significant is that last year saw a drop in the value of assets received by illicit cryptocurrency addresses - from the previous year’s total of $39.6 billion to $24.2 billion. This figure from Chainalysis, it should be said, is only based on known illicit addresses, and so may not paint the full picture; especially given the labyrinthine nature of FTX’s collapsed finances.

But Chainalysis also estimates that the proportion of crypto transaction volume associated with illicit activity dropped to 0.34% last year from the 2022 figure of 0.42%. There are, therefore, possible reasons for optimism.

What needs to be considered alongside this, however, is the rise of stablecoins. Stablecoins have replaced Bitcoin as the cryptocurrency associated with the lion’s share of illicit transaction volume, related to activities such as scamming and sanctions evasion. Stablecoins are also taking an increasing share of all legal crypto activity. Bitcoin, however, remains the main instrument in darknet market sales and ransomware extortion.

Trends

Regardless of the precise cryptoasset involved in any particular activity, there are some trends that could continue into 2024-25.

The past year has seen a fall in the revenue that has been gained from both crypto scamming and hacking. Some commentators believe that many involved in crypto scamming have now turned to a romance scamming approach, attempting to build relationships with their targets before suggesting fraudulent investment opportunities.

While some US data suggests that crypto investment scams are on the rise, the revenue gained from them has fallen in the past three years – at least it has regarding those incidents that have been reported. It will be interesting to see how the relationship between reporting and revenue continues.

Revenues for ransomware and darknet market activity, however, have risen in the past year, despite falls the year before that. It will be worth watching to see if these rises continue. It would also be useful if we could learn whether the rise in ransomware revenue is because the attackers have kept pace with – and even outwitted – developments in cybersecurity.

The development of the darknet in the wake of the 2022 shutdown of Hydra is also noteworthy. No clear successor has taken Hydra’s place but the darknet is clearly bouncing back.

The clearest trend appears to be the role of sanctioned entities and jurisdictions in illegal crypto activity. They accounted for a combined $14.9 billion worth of transactions last year, which was 61.5% of the illicit transaction volume measured by Chainalysis. These transactions involved crypto services that have been sanctioned in the US, are in sanctioned jurisdictions or are in jurisdictions where U.S. sanctions are not enforced.

The Russia-based exchange Garantex, for example, has been sanctioned by both the UK and the US and yet continues to operate – and is one of those organisations most heavily associated with transactions linked to sanctioned entities.

This is because Russia does not enforce such sanctions. Not all of Garantex’s transaction volume involves criminal activity. But the role of such bodies could prove central to the continuing intersection of crypto and sanctions.

There is also a trend for an increasing number of crypto exchange deposit addresses to receive large amounts of illicit cryptocurrency. Last year saw 109 exchange deposit addresses each receive more than $10 million worth of illicit cryptocurrency, with the total amount deposited being $3.4 billion. The previous year had seen just 40 addresses receive such amounts, with the total coming to just under $2 billion.

Such a change in approach may be down to the efforts of law enforcement to target the known “big players’’ in crypto when it comes to receiving the proceeds of crime. This may be why the more calculating criminals are looking to change their use of exchanges and are turning to cross-chain bridges that allow them to move funds from one blockchain to another.

Conclusion

With crypto regulation taking a more prominent stance in the Government’s efforts to combat financial crime, including HM Treasury’s publication in November of last year, it is reassuring to see the general downward trend in illicit activity concerning crypto.

That being said, criminals and wrongdoers have always historically been quick to adapt to overcome new obstacles put in their way. There is no doubt that they will continue to think of innovative way to gain access to illicit funds and so a close eye will need to be kept on the Government and regulator’s response to this shifting landscape over 2024-2025.

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Syedur Rahman is known for his in-depth experience of serious fraud, white-collar crime and serious crime cases, as well as his expertise in worldwide asset tracing and recovery, international arbitration, civil recovery, cryptocurrency and high-stakes commercial disputes.

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