Link to criminal pay cartoon here
Since the birth of digital currencies and later on cryptocurrencies, for definition and differences check my previous article here, these new way of payments have become more and more popular. They offer an ease of exchange and trade and are generally not regulated by banks or governments. Which also means they do not abide by tax laws that are applicable to the regular old [fiat] money. Consisting of zeroes and ones on a computer, or phone, screen does in no way prevent them from being misused. How so?
1. Crypto scams
Generally, one reviews the credentials of any trading party, whether for payment or reception of funds. Start by choosing the right wallet for you, which means that you need to do your research before using any app that will be managing your portfolio. Don't count on Google or Apple to do the probe on your behalf. Furthermore, run away, yes run is the proper term, from any "overnight" exchanges that are supposed to involve "better" performing coins. When you receive an alluring email about a possible investment, take your time to give the trader or the company a call and request some more details. Because when you are willing to invest in a startup or just any company and would like to use cryptocurrencies, you still need to do your homework before possibly purchasing tokens that might be used for a fake initial coin offering (ICO). According to Investopedia, "ICOs are a popular fundraising method used primarily by startups wishing to offer products and services, usually related to the cryptocurrency and blockchain space" (more details here). This is not to say that all such transactions are dishonest. Just be careful and when a deal looks too good to be true, simply avert it and look for another opportunity.
2. Security
Like any human made systems, digital wallets are bound to have weaknesses. Hacking digital wallets appears to be a lucrative operation, as statistics show that the numbers are on the rise. According to reports, more than 1 billion of cryptocurrencies have been stolen in 2018 (details here). Usually, hackers work in teams, not as a single person, and deception can be served in multiple ways. You could be subject to phishing, which happens when a well known exchange platform is cloned to steel your information and data, or cryptojacking, i.e. when the processing powers of computers are used for mining for the hackers, or simple extortion. You can read more on crypto hacking here. Exchanges might be working together to contain the damages but the essence of cryptocurrencies is their decentralization, even if a digital and even sometimes a paper trace remains possible. The safeguarding element is the blockchain, which is publicly accessible. More on this topic in a future article. As a rule of thumb, any hint of an inconsistency should alert you and raise your red flags on your undertaking. Better be safe safe than sorry, right? You can check one cryptocurrency scam list here.
3. Money Laundering
In brief, this is the process of legitimizing illegal proceeds. It starts with purchasing cryptocurrencies with fiat money, this is called placement. Then comes the use of numerous services to hide the origins of the funds. This is called layering and is followed by the conversion of the cryptocurrencies back into fiat money, named integration. Et voilà! The "dirty" money has been mixed with "clean" money and the source of funds has disappeared along the complex trails created for that purpose. Some regulations have seen the light recently, in the US, Europe and on a global level, such as the FATF (Financial Action Task Force) guidelines, published in 2019 and stating that "crypto exchanges needed to share sender and recipient information" (complete text here). Criminals prefer anonymity and it is essential to recall that Bitcoin isn't really anonymous since the full transaction history is visible to all users. This is not the case for all cryptocurrencies as some offer "anonymous transactions". Mobsters can also resort to the use of ToR (The Onion Router) to mask the used IP address of the user. In view of all of the above, how can law enforcement fight the dark endowment?
Cryptocurrencies are usually transparent. They can nonetheless be (mis-)used for tax evasion or other fraudulent activity. Carrying out regulations for fiat money cannot be very beneficial when a legal framework for cryptocurrencies is still in the making. The first component for investigators is to understand how dark web marketplaces, blockchains and cryptocurrencies work together in order to prosecute any illegal activity efficiently. Crooks might outsmart the analysts but not for long!
