More money, more problems
With the value of Bitcoin and other crypto coins reaching record heights – Bitcoin itself in recent months has flirted with $60,000 and a $1 trillion market cap – more individuals and companies are jumping aboard the hype train. But so are criminals, scammers and fraudsters.
One law enforcement official stated that last year, financial services firms filed some 500 suspicious activity reports (SARs) tied to potential illicit virtual asset activity, representing $800 million, in just one month.
This year, in the same month period, financial institutions filed more than 800 SARs representing a value of some $3.4 billion in aberrant crypto transactions in one month. Even so, the estimated overall percentage of illicit crypto is less than fiat, 1.3 compared to 1.8 percent.
Less mystery, more transparency – except when it comes to holding accounts
From the perspective of law enforcement, and the classic financial services sector, virtual asset service providers (VASPs) have taken great strides toward transparency.
Many of these operations have opened up their compliance programs and processes to scrutiny to their banking connections – in the desperate hope to keep accounts and prevent an unceremonious de-risking.
Not surprisingly, speakers also concluded that if you’re a financial institution, even if you say you “don’t bank crypto,” you’re still an off-ramp and a gatekeeper for illicit crypto.
Many crypto exchanges create fake names and don’t tell banks they are engaged in crypto transactions, putting more pressure on fincrime compliance teams.
Privacy does not always equal criminal activity
Even so, many speakers noted that the crypto sector is more nuanced, with the majority of actions and actors engaged in perfectly legal activity.
In short: move away from monolithic views of crypto risk. Banks holding crypto exchange accounts need to take a refined risk-based approach to act as a gatekeeper – but it can and is being done.
But, even at just a percent of illicit virtual asset activity, equating to billions of dollars, there are criminal groups, narco traffickers, cyber-enabled fraudsters and sanctions evaders looking to use the “pseudo-anonymous” aspect of crypto for their own gain.
How to fight them: Surprisingly, some of the approaches should be low-key and old school – so don’t reinvent the wheel, but know the details. Criminal typologies and red flags are broadly similar in crypto and fiat, with important distinctions based on the technology and user behaviors.
As one attendee said: “You still have to do old school cop work. In your investigations, look for leads in the real and virtual worlds. The tech is going to change and your skills are going to have to flow with the technology.”