These days, it seems like everyone is discussing cryptocurrency. It is promoted as a quick, contemporary, and safe method of transferring funds. Since Bitcoin has been around long enough, a lot of people believe they can trust it, and practically everyone knows someone who says they are profiting handsomely from trading tokens or coins.
People are drawn to the newest coin launch, which promises to move from nearly nothing to life-altering value, because of a fear of missing out. Criminals always follow a gold rush. This also applies to cryptocurrency.
How Crypto Scams Typically Work?
Initial Coin Offerings are a common target of frauds. An ICO is the equivalent of an Initial Public Offering in the cryptocurrency space, except it often takes place considerably earlier in the project's lifespan. Before a significant price increase, investors are urged to purchase on the ground floor.
The issue is that there is frequently no actual team, no real product, and no goal other than to make money and vanish. Other schemes steal money straight from wallets or exchanges, and then attempt to use other platforms to launder the stolen coins. Here are a few prominent instances of well-known cryptocurrency scams:
Sofia illegal trading
In Eastern Europe, a network of fraudulent binary options and cryptocurrency exchanges operated phony trading platforms and tricked individuals into making deposits.
Impact: losses of around 115 million dollars
Mt Gox hack
The biggest Bitcoin exchange used to be Mt Gox. Attackers took advantage of platform flaws, manipulated prices to nearly nothing, and then removed coins from the exchange.
Impact: In 2014, the firm went into insolvency after losing over 850,000 Bitcoin.
Indian ICO fraud
Money Trade currency's creator, Amit Lakhanpal, made false promises regarding support and regulation while promoting a currency that was never formally listed on major exchanges. Tokens that were useless were left to investors.
Impact: losses over $70 million
These are only a handful of instances. Particularly during times when cryptocurrency values are growing and more casual investors enter the market, new frauds and variants occur on a regular basis.
How Cryptocurrency Intersects with Fraud Investigations?
According to popular belief, financial crime has relied heavily on cryptocurrencies, and incidences of fraud, bribery, sponsorship of terrorism, and other illegal activities have increased in tandem with the growth of cryptocurrencies. In actuality, however, there is no direct correlation between the current global increase in financial crime and the rise of cryptocurrencies. Regardless of the channels at their disposal, scammers will always find methods to perpetrate fraud.
Digital assets have given criminals another way to carry out illegal transactions, even if it wouldn't be correct to say that bitcoin is the new currency of criminals. "Because of their fundamental features, cryptocurrencies can often act as magnets for criminal activity," said one expert who spoke at the latest Senate committee meeting. Most of them offer a high level of anonymity and are decentralized and borderless. Legal and compliance departments must thus be ready to stop and look into any fraudulent or unlawful activity involving digital assets inside their company. Additionally, in the event that these occurrences do happen, businesses need to be aware of how cryptocurrencies can affect or interfere with their regular methods for investigating fraud.
An Evolution in Financial Crime
Although there have been tales of fraud and money laundering since prehistoric times, it wasn't until the 1970s that governments in the United States and other countries started enacting legislation that made these practices specifically unlawful. The ways that criminals circumvented these rules changed along with economies, financial systems, and technological advancements; this trend continued with the introduction of cryptocurrencies in 2009. Since then, cryptocurrencies have been used for illicit dark web markets, money laundering, terrorist financing, theft, ransomware in cyberattacks, and other related crimes.
One feature that is frequently mentioned in this regard is the anonymity that cryptocurrencies offer. However, anonymity is not the same as invisibility when it comes to cryptocurrencies and the blockchain technology that supports them. In reality, the reverse is true since each transaction is trackable and traceable because it is immutably stored on a decentralized network.
Compared to crimes involving cash and wire transfers, digital forensics experts who know where to search and how to handle this kind of investigation can frequently locate, ascertain ownership, and recover monies in the bitcoin ecosystem far more easily. One of the best examples is the $2.3 million in cryptocurrency recovered from the Colonial Pipeline cyberattackers.
Investigating Misuses of Digital Assets
Businesses that are currently utilizing or investigating opportunities with digital assets are probably wondering how to find out if fraud is taking place in their digital accounts, how to spot it, and how to link suspicious activity involving digital assets to particular people or businesses. In order to track assets as they travel between digital wallets and exchanges, these initiatives start with focused investigative techniques.
The whole lifespan of a bitcoin account is examined through asset tracing. Investigators may explore, examine, and examine the origins and transaction activity of digital wallets and cryptocurrencies throughout their history using both standard forensic techniques and specialized blockchain forensic tools.
A transaction ID address, the kind of cryptocurrency account and transaction balances, stored and transacted, funding source, transaction history, and frequently attribution (account owner information) are among the artifacts that forensic specialists will examine throughout an inquiry.
Beyond track and trace use cases, these and other forensic investigative techniques are also useful. Financial services firms, for instance, can employ such techniques to do KYC, AML, anti-corruption, sanctions compliance, and other internal probes including digital assets, as well as to assess and confirm the viability of a cryptocurrency business they are thinking about purchasing.
Best Practices and Regulatory Guidance
It's crucial to remember that although digital asset investigations are growing more sophisticated, they are not a cure-all for all fraud and illegal funding. The fact-finding process will continue to be obfuscated by criminals, and many will choose to use cryptocurrency platforms that do not adhere to KYC and AML regulations. To lower the risk of fraud and misuse, companies must make sure they and their partners are adhering to KYC, AML, and other standard procedures inside their digital asset settings.
- It's equally important for legal and compliance teams to hire seasoned professionals who understand how to adhere to stringent chain-of-custody processes, defendable data preservation and analysis techniques unique to digital assets, and process documentation.
- Although many people still have misconceptions about blockchain, cryptocurrencies, and digital assets, this is starting to change. Lawmakers are keeping a careful eye on this area, and criminals and organizations are become more adept at using them.
Conclusion
Unquestionably, the quick uptake of cryptocurrencies has increased fraud opportunities, but it has also made it easier for investigators to track down and retrieve illegal monies. Although the decentralized and international character of digital assets might lead to illegal exploitation, blockchain technology itself provides an unchangeable and transparent record of transactions. Organizations may successfully detect, track, and reduce cryptocurrency-related fraud by combining blockchain forensics, regulatory compliance, and professional investigative techniques. In the age of digital assets, readiness, understanding, and adherence to best practices will continue to be crucial in the fight against financial crime as the ecosystem develops and supervision grows.