With the world’s most prominent cryptocurrency option continuing its exponential rise to record high valuation in 2021, Bitcoin and other virtual assets have come to the forefront of the debate over the future of finance and, as such, financial security both domestically and abroad. Given the volatility of cryptocurrency pricing and the increased anonymity that these cyber-options provide financial criminals in avoiding detection and allowing destabilizing fundraising efforts to grow, several countries have been hesitant to adopt cryptocurrencies or develop regulations to harness their groundbreaking power thus far given the perceived threats that such moves could pose to their national economies. While many have questioned the sentiment that digital asset innovation has outgrown much of the global regulatory framework surrounding cyrptocurrencies, fear of the risks associated with widespread adoption and use of these assets is somewhat warranted however. With major global crypto/blockchain hacks and fraud schemes seen over the last several years alone leading to tens of billions of dollars in collective losses for individuals and institutions dealing in a number of these technologies, investors and regulators alike have been served notice to just how unique and delicate this situation remains.
With the growing prevalence and reach of crypto-platforms and currencies worldwide over the past decade has come a near equal uptick in crypto-related crime, much of which has proliferated on so-called “darknet markets.” Almost synonymous with the international black market, these dark-web sites offer a wide variety of illicit goods (i.e. drugs, weaponry, and classified information) and services for varying returns – developing into something of an Amazon marketplace for bad actors. All transactions on these marketplaces are totally anonymous given that the markets exist on open source privacy networks that permit users to browse the web anonymously (i.e. the “Tor” network), while using cryptocurrencies as the primary means of payment to further shroud the individuals and organizations behind the transactions. Investopedia notes that these crypto transactions take place through use of dark wallets that act to protect the seller and buyer, with payments held in escrow by the site operator to discourage scammers.4 Often, the only way that these transactions are caught and subsequent transfers thwarted is when the physical items being purchased are exposed by domestic and international postal services or border patrol agencies.
Notable blockchain analytics firm Coinfirm released a report last week finding that cyber-criminals managed to get away with nearly $10.5B in 2020 alone, comprising the total value of activities in crypto from opiate trafficking, fraudsters, terrorism financiers and all other illicit activity.6 Thereport continues, noting that the largest and fastest growing crypto-crime is fraud/scamming. They estimate these exploits make up 67.8% of the $10.5B that was pilfered last year. For context, this equates to roughly seven times more than the proceeds of crypto-hacks, which only comprised 9.6% of the gross total of proceeds from crypto-crime in 2020. Even more striking than these profound totals is the fact that an estimated 80% of all crypto-related fraud and hacking cases are never reported to law enforcement within the year that these crimes occur, and as much as 50% of potential crypto-crime claims are never filed at all.2 This means that the true scope of these crimes are exponentially greater than the multi-billion dollar figures reported in the Coinfirm study. Directly correlated to these eye-opening statistics are the growing number of increasingly complex and seemingly-legitimate scams being developed on a regular basis – a practice that has only grown in scope and success rate since the onset of the COVID-19 pandemic. A recent Forbes article examines the “true cost of crypto crime” shed light on the shear number of scams and schemes seen in this market today. The article notes that among the most prevalent tactics utilized today are the use of fake Initial Coin Offerings (ICO’s) – a means by which individuals raise funds for new crypto-options – exchanges, applications/platforms, Ponzi scams, various types of market manipulation tactics, exit scams, sim-swapping, crypto-jacking, false vanity address generators, phishing and trust trading,”6 each of which successful in its own right. During the height of the pandemic, the vast increase in furloughed and unemployed individuals coupled with the spike in remote work setups led to increased time spent at home and an increased reliance on technology and the cyber realm for virtually all walks of life, leaving scammers with a plethora of unsuspecting targets to choose from during a period of grand uncertainty
Though the capabilities (both good and bad) of the global crypto landscape have remained basically unharnessed to this point in time, change appears to be on the horizon – at least on American soil. Regulations from government agencies such as the Internal Revenue Service (IRS) are currently being developed to reign in activities that have grown from the use and misuse of various cybercurrency platforms. As part of an effort coined Operation Hidden Treasure, the IRS Criminal Investigation division has formed a dedicated team of criminal investigative professionals to target taxpayers not reporting cryptocurrency transactions on their tax returns.5 Many believe that U.S. financial regulators, including the Securities and Exchange Commission (SEC) led by newly-appointed President Gary Gensler, under the Biden administration will be crypto savvy and set the precedent for additional regulations and legislation surrounding these assets. As matters currently stand, the global revenues from cryptocurrency-related crimes remain small potatoes compared to global fraud and money laundering statistics. While the $10.5B in reported losses for 2020 cannot be brushed off, it’s a drop in the bucket compared to an estimated $2+ trillion in cash that’s laundered through the global financial system each year. However, if crypto ever wants to gain mainstream acceptance it will have to embrace regulation and show that it can be a safe and secure alternative to cash.
Ex-Citgo Executive Pleads Guilty to ML, Bribery
A former procurement officer and special projects manager for Citgo Petroleum Corp. pleaded guilty on Monday to charges that he played a major role in laundering millions of dollars in bribes in exchange for awarding individuals and companies access to lucrative contracts with the energy staple. Jose Luis De Jongh Atencio, a dual citizen of the United States and Venezuela, was discovered to have accepted over $7 million in bribe payments in exchange for assisting businessmen and related companies in procuring contracts with Citgo (a Texas-based subsidiary of Venezuela’s state-owned energy firm Petróleos de Venezuela S.A.), while also providing these entities with other specific business and social advantages between 2013 and 2019. De Jongh ultimately admitted to depositing kickback payments into bank accounts in the names of shell companies he controlled in Panama and Switzerland, while he also orchestrated the creation of false invoices to justify payments being made to these faux firms.
The U.S. Department of Justice (DOJ) notes that De Jongh reportedly laundered the bribe proceeds through U.S. and international bank accounts and used the funds to purchase real property located in the Houston area.3 Aside from the financial payments provided to the former executive, De Jongh was also found to have received tickets to major sporting events including the MLB World Series in 2014, the NFL’s Super Bowl in 2015 and even concert tickets to see various artists perform. As part of his plea agreement, De Jongh will forfeit over $3 million seized from his bank accounts, as well as 15 properties he purchased using these corrupt proceeds.3 He also faces up to 20 years in prison, with sentencing set for August 19, 2021. Altogether the U.S. DOJ has announced charges against a total of 28 individuals in relation to bribery and other improprieties occurring at PDVSA over the last decade.
COVID-19 Fraud A Multi-Million Dollar Industry in UK
A recent report from the United Kingdom’s Action Fraud national reporting center indicated that over £34.5 million has been pilfered by bad actors through COVID-related fraud and cyber crime schemes since March of 2020. Altogether, Action Fraud reports that 6,073 total reports of pandemic-linked fraud and related crimes have been filed in England, Wales and Northern Ireland over the past year alone. While the bulk of these illicit exploits came during the early months of the pandemic when the greatest degree of uncertainty and fear were present amongst the masses, the BBC writes that the UK’s National Cyber Security Centre has reported that it is currently responding to approximately 30 “significant attacks” a month against the country’s pandemic response infrastructure.7 The BBC also notes that City of London Police, which coordinates efforts to combat fraud, has reported more than 150 related arrests were made since the pandemic began and more than 2,000 websites, phone numbers and email addresses linked to the crimes were taken down (BBC).
There has also been a recent uptick in reporting of schemes related to vaccine registration over the last several months, as criminals have been able to capitalize at the expense of citizens seeking immunity from the virus while also seeking to breach vaccine producers and supply chains altogether. Some have even marketed “fake vaccines”, offering in-home injections of foreign substances that provide no protection from COVID-19 to unbeknownst individuals – and at extremely high costs. Other global ploys that have emerged during the age of the pandemic include romance fraud (discussed in detail by Global RADAR in the recent past), cyber fraud including unemployment assistance and Paycheck Protection Program (PPP) exploitation schemes, and sophisticated phishing schemes that have grown in prevalence and reach in recent months. In a statement released on the subject, City of London Police Commissioner Ian Dyson stated “We are committed to protecting the public from fraud and have worked closely with all our partners in law enforcement and the private sector to make arrests, gather evidence, and ultimately bring criminals before the courts.”1
- Davis, Margaret. “Covid-19 Scams Linked to Losses of £34.5m in Past Year.” Yahoo! News, Yahoo!, 23 Mar. 2021.
- Dutta, Sachin. “AK-47s To The Moon – The True Scale of Crypto Crime.” Coinfirm, 1 Mar. 2021.
- “Former Venezuelan Official Pleads Guilty in Connection with International Bribery and Money Laundering Scheme.” The United States Department of Justice, 22 Mar. 2021.
- Frankenfield, Jake. “Darknet Market.” Investopedia, Investopedia, 5 Feb. 2021.
- Jahosky, Jan. IRS Operation Hidden Treasure Cracks Down on Unreported Bitcoin and Crypto Users, 25 Mar. 2021, PRNewswire.
- Kuskowski, Pawel. “What Is Crypto Crime’s True Cost?” Forbes, Forbes Magazine, 15 Mar. 2021.
- Simmons , Dan, and Matt Quinton. “Covid Fraud: £34.5m Stolen in Pandemic Scams.” BBC News, BBC, 24 Mar. 2021.