In the first five months of 2020, crypto-currency thefts, hacks and fraud totalled $1.4 billion (R24 billion).
This is according to blockchain threat intelligence solutions firm CipherTrace, which has released its Spring 2020 Crypto-currency Anti-Money Laundering and Crime Report, containing key data on crypto-currency crimes and trends that will have regulatory repercussions for virtual asset service providers and other financial institutions.
The report says the R24 billion figure suggests 2020 could see the greatest total amount stolen in crypto crimes outside 2019’s $4.5 billion (R80 billion).
It notes the 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, says CipherTrace.
The scam promised investors incredible returns using 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, says CipherTrace.
Contributing to this number are coronavirus-themed crypto crimes, which have proliferated in the wake of the current health and economic crises.
CipherTrace explains that coronavirus-inspired fraud is generally executed by luring victims off legitimate platforms into chat rooms where payment in Bitcoin can be requested.
“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,” the firm says.
“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 crypto-currencies, applications that claim to support victims with information but are actually spying on users, and the sale of PPE [personal protective equipment], supposed treatments, testing kits and phishing kits.”
It notes that though the majority of COVID-19-related products sold on darknet markets did not see many sales, phishing kits were relatively successful.
On the regulatory front, CipherTrace data reveals that 74% of the Bitcoin moved in exchange-to-exchange transactions was cross-border.
It says 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 compliance.
CipherTrace says the need for compliance is especially profound in light of impending travel rule enforcement and the recent statement by US Financial Crimes Enforcement Network director Kenneth Blanco reminding the crypto community that travel rule compliance is already the expectation in the US.
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, the firm notes.
“This suggests that many criminals are finding it harder to offload their illicit funds directly to crypto-currency 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.”
CipherTrace research reveals 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 indicates Bitcoin ATMs are likely to be the next major regulatory target, the company says.
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