Author: Syedur Rahman
25 March 2020
3 min read
The figure that grabbed the headlines was that the total cost of crimes involving cryptocurrency hit $4.3 billion in 2019. That is a bigger total than ever before, dwarfing the $3 billion that was the combined figure for 2017 and 2018.
So the evidence is there on paper that cryptocurrency-related crime is a problem. A very big problem. But while $4.3 billion tells its own story, the situation is, I would argue, not quite as clear-cut as to be explained by one statistic.
For a start, if reports are true we have a situation where 90% of funds that are taken from innocent people are being illegally obtained via just half a dozen schemes. So while the scale of the problem is big (and getting bigger) it does seem to be a problem that is down to the actions of a small number of people and entities rather than something being conducted by vast numbers of criminals.
PlusToken, to take an example, involved individuals being persuaded to purchase the currency by talk of great returns on their investment. The investments were made, investors sat back and waited for the great returns, only to find that the sites they had been directed to did not work. There was no way they could pull their money out once they realised they had been had. Just over eight months ago, Chinese authorities arrested six people in connection with a fraudulent operation PlusToken was conducting. It now seems to be apparent that PlusToken was nothing more than a Ponzi scheme, albeit a Ponzi that separated South Korean and Chinese investors from huge amounts of their money.
There is, arguably, some consolation to be taken from the fact that if six or so major criminal crypto fraud schemes could be stopped then the $4.3 billion figure could plummet. And those looking for reasons for optimism may find it in the analysis of cryptocurrency fraud that has found a lot of it to be old investment fraud in new clothes.
Yet while these two viewpoints have a degree of truth in them, there are other factors that give reason for pessimism. For one, cryptocurrency has been sold by many – both those who are legitimate and those who are definitely not – as a brave new world where fortunes can be made. This has obviously attracted many who are looking to make an intelligent, rewarding investment. But unfortunately, many such people have fallen prey to those who are only too happy to play on such enthusiasm and lack of awareness in order to make illegal gains for themselves.
This has inevitably led to calls for regulation of cryptocurrency. The sad fact is that without such regulation it is difficult to see how that $4.3 billion figure will drop. If we go back to PlusToken, this was one of the biggest Ponzi schemes in China. While some individuals have been arrested, the stolen funds still continue to move through wallets and are then cashed out through a number of independent and over-the-counter brokers; who facilitate trades between individual buyers and sellers who don’t want to transact on an open exchange.
As over-the-counter brokers generally have lower know-your-customer requirements they are attractive to those looking to move the proceeds of crime. Added to this, crypto-related Ponzi schemes can be incredibly complex. The perpetrators of the fraud can use algorithms for coins to be sent to various wallets, funds can be sent through numerous wallets and then split off in quick succession. It is a layering process that helps launder the proceeds of cryptocurrency crime.
The complicated nature of these proceedings can be tough to explain to a jury; which could make successful prosecutions very difficult. But more importantly, law enforcement has a lot to do to catch up with developments in crypto-related crime. Until that happens it is hard to see an annual drop in the amount of money being lost to such crime each year. Those who incur such losses may be better off using the right tools and relevant legal applications to go down the asset tracing and civil recovery route in order to regain what is theirs.
Tracing exercises can lead to identifying the parties using cryptocurrencies for illicit activity such as fraud. This, in turn, can be used to support proprietary injunctions or, alternatively, a freezing order in connection with any cryptocurrencies held by those involved in wrong-doing. Applications can be made without notice against those involved, if you can establish there is a real risk to the administration of justice. Applications can also be made for a court order to be granted in relation to a relevant cryptocurrency exchange, where information about the holder of any cryptocurrencies can be obtained.
Syed's article originally featured on The Cryptocurrency Magazine.
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.