Cryptocurrencies and blockchain technology has opened doors to many new innovations and has positively impacted people all over the world. Along with the positive roles it’s played in this world, the crypto sphere has brought a few problems.
Cryptocurrency related crimes have been on the rise over the last several years. The anonymity of these transactions has attracted the attention of many criminal organizations in order to utilize these little nuggets of digital gold as an opportunity for kidnapping, money laundering and other illegal activity.
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Law enforcement agencies around the world are trying hard to find a way to track and stop these criminal activities. We’ll share with you a few cases studies where law enforcement handled such issues.
ICO Scams (Initial Coin Offerings)
This is one of the most popular crypto crimes in the world of today. Criminals create a fake project to attract willing investors, pretend to launch an ICO, and collect money in the form of BTC/ETH or other digital currency and inevitably take off with the investors’ money.
To pull these off, they create fictitious project names, sometimes even pretending to have a few big name investors or team members etc. to gain credibility. Once they receive the money, they leave the project behind and vanish like a thief in the night.
One scam artist used the photo of Ryan Gosling for his profile picture and called himself “Kevin Belanger”, a graphic designer. The Miroskii ICO is suspected to have raised around $830,000 from unsuspecting investors. No one knows what happened to the funds after the project closed, however their website is still running. There is little that local law enforcement can do in most of these cases as some of them may be in different geographic locations and the anonymity of a bitcoin wallet makes it hard to link it to a real person.
There have been so many ICO scams that the US Federal Trade Commission (FTC) is trying to find a way to tackle this problem, but has not been successful so far. Without a regulatory framework for the cryptocurrency world, it will be hard for the federal agencies to find and prosecute such criminals. Some states like Texas have taken an active role in identifying and banning fraudulent ICOs. More needs to be done for such bans to have a real effect within the ICO community.
The crypto sphere is infamous for their exchange hacks and ICO scams, however criminals have found more ingenious ways to steal money from people. In Dubai, a group of criminals impersonated trade officials issuing licenses and duped 2 brothers out of $1.9 million in cash as well as assaulted them. Fortunately, the group was apprehended quickly and were later prosecuted.
Kidnapping has also become common place in the crypto world.
The Louis Meza Kidnapping
Louis Meza, a New Jersey local tried to kidnap a business associate by inviting him for a fake ‘Uber’ ride. Meza, along with another criminal partner, forced the victim to hand over his apartment keys and the 24-word passphrase to his Ledger Nano S wallet at gunpoint. Meza took all valuables from the victim’s apartment. It was almost a successful plan except for two small problems.
Meza was seen entering the victim’s apartment, thanks to the surveillance camera in the building. Secondly, Meza used a cryptocurrency exchange to change the ETH in the wallet to BTC. Meza’s mistake was that the exchange account was in his name and that gave the DA enough evidence to prosecute Meza for kidnapping, robbery and other crimes.
Money Laundering Cryptocurrency
Cryptocurrency has made it very easy for drug dealers and money launderers to move money across borders without getting caught by the banking system. Law enforcement agencies have already sniffed out several rather large money laundering cases. They’ve made several arrests as well as convictions on many cases.
One of the most famous cases was of Thomas Mario Costanzo who was convicted for laundering $164,000 on behalf of undercover agents who posed as drug dealers. Costanzo was apprehended by a DHS-ICE led joint task force. Costanzo was also charged for providing an exchange service without a KYC process (know your customer). The service was primarily used by others for buying drugs from dark web marketplaces similar to Silk Road.
Costanzo’s conviction carries a five-year prison sentence and a $250,000 penalty for five other counts. This was an easy case since it occurred within the US jurisdiction.
In other scenarios, help has been sought from international law enforcement agencies. In one case, agencies from Finland, Spain, the United States, and Europol were involved where a total of 137 people were investigated and 11 were arrested in laundering money for a drug cartel. The drug dealers used credit cards to launder money from Spain to Colombia.
After a while, they decided to switch to cryptocurrency since bank accounts can be easily traced, even if it was located in different countries. Europol’s crime unit was able to trace the transaction by keeping an eye on the crypto to peso conversion and successfully tracked the laundered money. Europol will be training more officers in detecting crimes related to cryptocurrency and will continue to monitor such activities across Europe.
Future Crypto Crimes
There is no doubt that cryptocurrency related crimes are bound to rise as they become more accessible to common people. Although there are several advantages to using these digital coins, (transactions can stay private, no central control, no geographic boundaries , etc), they also bring with them a few unique challenges for law and financial enforcement professionals.
The anonymity as well as a lack of geographic restriction on crypto transactions has made it harder to apply traditional policing techniques to detect, stop and punish offenders. Law enforcement will need a lot more training and tools to stay on top of the new technologies.
There is also a need for consumer education in order to ensure new investors are educated with such scams and the crypto economy. This will ensure they don’t fall victim to typical scams like fraud, ICO investments, free hardware wallets that steal coins, high exchange rates, etc.
Much like the real world, if something sounds too good to be true, it generally is.
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