Research finds criminals hit $1.4 billion jackpot from cryptocurrency crimes


CipherTrace has released its Spring 2020 Cryptocurrency Anti-Money Laundering and Crime Report with key data on cryptocurrency crimes and trends that will have regulatory repercussions for VASPs and other financial institutions.

In the first five months of 2020, crypto thefts, hacks, and frauds totalled $1.4 billion, suggesting 2020 could see the second-highest value in cryptocurrency crimes ever recorded. Contributing to this number are COVID-19-themed crypto crimes, which have proliferated in the wake of the current health and economic crises.

On the regulatory front, the data reveals that 74% of the bitcoin moved in exchange-to-exchange transactions was cross-border. The abundance of cross-border transactions highlights the need for exchanges to adopt appropriate cross-border controls to ensure Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) compliance.

The need for compliance is especially profound in light of impending Travel Rule enforcement and the recent statement by FinCEN Director Kenneth Blanco reminding the crypto community that Travel Rule compliance is already the expectation in the US.

Highlights of key findings are as follows:

Thefts, Hacks, and Fraud
  • In the first five months of 2020, crypto thefts, hacks, and frauds totalled $1.4 billion, indicating 2020 could see the greatest total amount stolen in crypto crimes outside 2019’s $4.5 billion.
  • COVID-19-inspired fraud is generally executed by luring victims off legitimate platforms into chat rooms where payment in bitcoin can be requested.
  • Phishing sites were found to be the most popular COVID-19 related products sold on the dark web, while most fake COVID-19 PPE products had very little sales.
Big reduction in cryptocurrency from criminals paid directly to exchangesExchanges and Darknet Marketplaces
  • The global average of direct criminal funds received by exchanges dropped 47% in 2019.
  • This trend marks a three-year low for cryptocurrency exchanges around the world, with only 0.17% of funds received by exchanges in 2019 coming directly from criminal sources.
  • Based on CipherTrace’s examination of one prominent darknet marketplace, while 9.8% of the dark market’s one-hop interactions went directly to exchanges, 31% of its two-hop interactions went to exchanges—more than tripling the risk exposure to exchanges.
  • Finnish exchanges ranked #1 for highest percentage of criminal BTC received for the third year in a row, with 12.01% of all BTC funds received coming directly from criminal sources. Localbitcoins, one of the largest peer-to-peer marketplaces, received over 99% of these criminal funds.
Cross-Border Transactions
  • 74% of the bitcoin moved in exchange-to-exchange transactions was cross-border.
  • 88% of funds that US Bitcoin ATMs (BATMs) sent to exchanges in 2019 were sent offshore.
Bitcoin ATMs
  • US BATM users on average sent more funds to high-risk exchanges than low-risk exchanges in 2019.
  • The percentage of funds sent to high-risk exchanges from US BATMs has seen exponential growth, doubling every year since 2017.

Total Value Stolen from Crypto Crimes is On-Track to be the Second-Highest On Record

The largest contributor to this high number is a billion-dollar ponzi scheme by Wotoken in China. The scam promised investors incredible returns using a non-existent algorithmic trading software. Ultimately, Wotoken stole an estimated $1 billion in crypto from over 715,000 victims with one operator containing ties to the infamous PlusToken ponzi scheme.

Contributing to the high total value netted from crypto crimes are COVID-19-related scams. While governments funnel resources into mitigating detrimental health and economic impacts of the pandemic, criminals are taking advantage of the lack of oversight resulting from the need for urgent action.

COVID-19-related fraud can take the form of impersonations of legitimate entities like the Red Cross to extract personal information and/or payment in cryptocurrencies, applications that claim to support victims with information but are actually spying on users, and the sale of PPE, supposed treatments, testing kits, and phishing kits. Though the majority of COVID-19-related products sold on darknet markets did not see many sales, phishing kits were relatively successful.

 Cryptocurrency AML Measures Prove Effective, But Criminals Are Getting Savvier

Though the total value collected by criminals from crypto crimes is among the highest recorded, the global average of direct criminal funds received by exchanges dropped 47% in 2019. This suggests that many criminals are finding it harder to offload their illicit funds directly to cryptocurrency exchanges, indicating effective implementation of AML measures around the world.

It’s worth noting, however, that criminals seem to be getting savvier in how they are obfuscating the origins of their stolen funds prior to cashing out on exchanges. CipherTrace’s examination of one prominent darknet marketplace revealed that risk exposure to exchanges tripled for interactions two-hops out compared to one hop out.

Regulatory Arbitrage Precedes Travel Rule Sun Rise

Impending Travel Rule enforcement hangs over the cryptocurrency economy as VASPs seek to adopt solutions prior to the June 2020 Financial Action Task Force ( meeting. So far, Japan, Switzerland, the UK and the United States have made the most Travel Rule progress, while several higher-risk virtual asset companies relocated to jurisdictions with less stringent regulation.

CipherTrace found that 74% of the bitcoin moved in exchange-to-exchange transactions was cross-border, underlining the importance of global AML/CTF standards, such as those set forth by the FATF.

Bitcoin ATMs Could be Next Regulatory Target

CipherTrace research revealed US Bitcoin ATM users sent more funds to high-risk exchanges, which are more likely to be used for money laundering, than low-risk exchanges in 2019. This finding, combined with recent enforcement action taken against Kunal Kalra for his BATM money laundering scheme, indicates Bitcoin ATMs are likely to be the next major regulatory target.

For access to the full report click HERE

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