As more and more money pours into cryptocurrency crimes and scams, government agencies are cracking down more and more, as seen by the launch of dedicated teams at the Department of Justice and the FBI.
| To analyse
February 18, 2022
Cryptocurrencies such as bitcoin have continued to gain prominence, especially as a method of payment for goods and services in the next generation of the Internet, Web3. But as more and more money pours into hitherto loosely regulated currencies, government scrutiny also increases.
On February 17, the US Department of Justice announced that it was launching a National Cryptocurrency Enforcement Team designed to monitor blockchains, the underlying technology of cryptocurrencies, for any ill-gotten gains. He will work with various groups, including the FBI’s new Virtual Assets Operating Unit, which also focuses on cryptocurrency.
“With the rapid innovation of digital assets and distributed ledger technologies, we have seen an increase in their illicit use by criminals who exploit them to fuel cyberattacks and ransomware and extortion schemes; drug trafficking, hacking tools and illicit smuggling online; commit theft and fraud; and launder the proceeds of their crimes,” Kenneth Polite Jr of the US Department of Justice said in a declaration.
The news comes weeks after the Department of Justice charged a couple with the laundering of bitcoins worth $4.5 billion – and just after the UK tax authority, HMRC, announced its first crisis non-fungible tokens (NFTs), digital assets that are paid for with cryptocurrencies. In January, a new scientist An investigation revealed that UK police forces had seized £300 million worth of bitcoins over the past five years.
Taken together, this appears to amount to a crackdown on cryptocurrency. “This is great news for anyone who has been watching space for a long time and is long overdue,” says Andres Guadamuz at the University of Sussex, UK. “Indeed, there have always been frauds in crypto, but I think there is growing concern about the scale of some frauds.”
Although there are many legitimate uses for the technology, cryptocurrencies are also used for money laundering. A recent analysis of 29 unregulated cryptocurrency exchanges, where people can trade the currencies, found that up to 70% of cryptocurrency trades were “washout trading” – where an investor sells and buys the same asset to create artificial interest in an investment, often distorting the price. This research studied exchanges up to 2019. A more recent analysis, conducted by blockchain data platform Chainalysis, estimates that at least $25 billion worth of cryptocurrency held on exchanges comes from illicit sources. It compares with estimates of money laundered each year in the world between 800 and 2,000 billion dollars.
“The FBI, along with many other law enforcement agencies, have made no secret of the fact that they view cryptocurrency – and bitcoin in particular – as the preferred way to monetize crimes, especially the ever-increasing scourge of ransomware,” says Alan Woodward at the University of Surrey, UK.
At the same time, cryptocurrencies have moved from an online niche to something considered a more mainstream investment. Major cryptocurrency exchanges ran ads featuring Hollywood stars during the Feb. 13 Super Bowl, one of the most-watched sporting events in the world, which was seen by 112 million people.
While cryptocurrency exchanges are legitimate businesses, the increased prominence of technology makes it easier for people to fall victim to illegitimate scams. “Cryptocurrency scams and other crimes are increasingly affecting people in different ways,” says Matthew Shillito at the University of Liverpool, UK. In May 2021, the United States Federal Trade Commission (FTC) said to have seen a multiplication by 12 in number and a 1000% increase in value of reported cryptocurrency scams, compared to the previous year. The volume of scams increased dramatically throughout 2020 and 2021, the FTC said.
In a sense, the creation of the NCET is a recognition that cryptocurrencies are set to play an increasingly important role in the US economy and should therefore be controlled as such. “Instability and fraud have been tolerated so far, but as more people invest their savings in crypto, the danger of collapse is more real,” says Guadamuz.
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