Blockchain security expert CipherTrace just released its cryptocurrency anti-money laundering report for the first quarter of 2019, and things do not exactly look rosy. Illegal activities involving cryptocurrencies have increased exponentially as criminals and rogue regimes become even more sophisticated with their schemes. As these threats continue to plague the crypto community, authorities are scrambling to beef up regulations as viable preventive and punitive measures.
Theft, scams, fraud
Most of the cryptocurrency losses are attributed to iniquitous schemes. According to the report, an estimated USD 1 billion were lost to theft, scams, and fraud in the first quarter of 2019 alone. Two major crypto players saw themselves in the centre of the maelstrom.
The first to implode was Canada-based exchange QuadrigaCX following the questionable death of its CEO in India. The exchange lost about USD 195 million worth of cryptocurrencies as the firm claimed only the QuadrigaCX CEO, Gerald Cotten, knew all the passwords.
The second to find itself in hot water is the Hong Kong-headquartered cryptocurrency exchange Bitfinex. The New York Attorney General’s Office sued the said exchange as it uncovered an alleged multi-million dollar fraud that involved Bitfinex and its sister company, Tether. Both are currently contesting the charges.
These cases barely scratch the surface. CipherTrace says that cybercriminals continue to develop ‘ingenious new techniques to drain millions more from user accounts and wallets’. All they have to do is to look for countries with relaxed rules on cryptocurrencies so it would be easy to infiltrate exchanges and infrastructures given their vulnerability.
Some regimes see cryptocurrencies as the way to get around tough international sanctions. Iran, for example, launched Crypto Rial, a state-sanctioned gold-backed stable coin. This move came in the heels of global interbank funds transfer network SWIFT’s banning of some Iranian banks spurred by the US reinstating sanctions against Khamenei’s regime in response to its alleged nuclear initiatives.
Russia’s Central Bank, meanwhile, announced its own SWIFT alternative called Financial Communications Transfer System (SPFS) which most probably will run on blockchain-powered Ethereum. Such a move is seen as a response to financial sanctions that might impede Russia’s economic growth. Finally, there’s North Korea. According to a report of the UN Security Council released early March of this year, North Korean hackers breached five cryptocurrency exchanges in Asia between January 2017 and September 2018 which resulted in USD 571 million in losses. North Korea continues to deny such attacks.
Also troubling are other criminal activities that involve cryptocurrencies and blockchain technology. CipherTrace cites the abduction of a Norwegian billionaire’s wife where kidnappers demanded USD 10 million worth of the digital currency Monero as ransom. 68-year old Anne-Elisabeth Falkevik Hagen, the wife of Norwegian businessman Tom Hagen, has yet to be released.
CipherTrace also included in its report US Homeland Security’s revelation that Mexican drug cartels are allegedly using Chinese cryptocurrency as money laundering networks. This led to Mexico’s Central Bank’s proposal to impose an outright ban of cryptocurrency transactions to prevent money laundering by drug cartels and terrorist groups.
Asia is definitely not immune to these criminal activities. Apart from being vulnerable to theft, Channel News Asia recently reported the proliferation of online streaming of child abuse with sexual predators using cryptocurrencies as payment and file sharing done on an autonomous peer-to-peer network.
In response to these illicit activities, more and more countries are expected to pass stricter regulations. The report put it succinctly when it said that “a tsunami of tough new global anti-money laundering (AML) and counter-terror financing (CTF) regulations will roll over the crypto landscape in the coming year.”
CipherTrace cites the creation of the Financial Action Task Force (FATF) which was “founded to address concerns about money laundering and the threat it poses to the world financial system.” Its proposed crypto measures will be able to “provide guidance to regulators in the Caribbean, Latin America, the Middle East, and North Africa.”
The report also cited countries like the US and Canada leading the charge by releasing updated regulations on cryptocurrencies and virtual currency exchanges.
While there are still innate advantages of an autonomous network and the use of cryptocurrencies, it cannot be denied that their control-less nature makes them vulnerable to a whole host of criminal activities. Cliche, as it may sound, with great power, comes great responsibility so if the world wants a crypto-friendly future, it might just necessitate a certain degree of regulations.
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