Cryptocurrency thefts, scams, and fraud seem like they’re subsiding as the technology goes mainstream, right? Wrong. Crypto criminals and fraudsters stole more than $1.2 billion in the first quarter of 2019, according to a report by cryptocurrency security firm CipherTrace.
It’s no wonder a “tsunami of global anti-money laundering (AML) and counter-terror financing (CTF) regulations” is scheduled to take effect this year.
CipherTrace develops cryptocurrency anti-money laundering, cryptocurrency forensics, blockchain threat intelligence and regulatory monitoring solutions for exchanges, banks, investigators, regulators, and digital asset businesses. The company was founded in 2015 and has backing from the U.S. Department of Homeland Security (DHS) Science and Technology (S&T) and Defense Advanced Research Projects Agency (DARPA).
In light of the controversy surrounding the missing $850 million in the Bitfinex and Tether case, CipherTrace has looked into the risks related to “stable coins,” those designed to be backed by a stable currency that should theoretically moderate price fluctuations.
The report found that criminals stole more than $356 million in cryptocurrency from exchanges and infrastructure during the first quarter of 2019.
Among these losses, exit scams — where founders of crypto companies make off with the money — robbed cryptocurrency users of nearly $195 million.
Cyber criminals also developed ingenious new techniques (like reassigning a user’s smartphone SIM card and using two-factor authentication to create a new account password) to drain millions more from user accounts and wallets. I personally know three crypto investors who said they lost money via the SIM card scam.
These thefts only represent the losses that are visible. CipherTrace estimates that the true number of crypto asset losses was much higher.
CipherTrace research conducted in Q1 revealed a major hole in the current cryptocurrency regulatory fabric with respect to cross-border payments. An analysis of 164 million Bitcoin transactions revealed that cross-border payments from U.S. exchanges to offshore exchanges increased from 45% in the 12 months ending Q1 2017 to 66% in the 12 months ending in Q1 2019.
This is significant because, according to the International Consortium of Investigative Journalists, “$8.7 trillion, 11.5% of the world’s wealth, is hidden offshore.”
Once these payments reach exchanges and wallets in other parts of the globe, they fall off the radar of U.S. authorities.
CipherTrace said a wave of tough new global anti-money laundering (AML) and counter-terror financing (CTF) regulations will roll over the crypto landscape in the coming year. As of April 2019, 17 countries plus the European Union within the jurisdiction of the Financial Stability Board had at least some regulation or standard-setting bodies dealing with cryptocurrencies.
Last year’s crypto crime spree was dominated by major external exchange hacks around the globe — with the biggest occurring in Q1 2018.
However, in the first quarter of this year, insiders, extortionists, and scammers attempted a more diverse range of crypto crimes. As just one example, kidnappers in Norway demanded a 9 million euro (approximately US$10.3 million) ransom in Monero, a privacy coin, for a billionaire’s wife. She has not yet been returned nor have the alleged abductors offered any proof of life, the report said.
While not included in the current theft numbers in this report, on March 6, 2019 the UN Security Council reported that North Korean state-backed hackers successfully breached at least five cryptocurrency exchanges in Asia between January 2017 and September 2018, causing $571 million in losses.
The geopolitical implications of cryptocurrencies also took center stage in Q1 2019, with countries competing to attract crypto businesses and foster related economic growth. Conversely, overt attempts to evade sanctions by hostile nations show that economic adversaries recognize the money-laundering and terrorist financing potential of crypto assets, the report said.
Clearly, these problems will need to be addressed before cryptocurrency goes mainstream.