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.
CipherTrace also found that cross-border payments from U.S. cryptocurrency exchanges to offshore exchanges increased from 45 percent in Q1 2017 to 66 percent in Q1 2019.
And it’s no wonder that there are a “tsunami of global anti-money laundering (AML) and counter-terror financing (CTF) regulations” 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 it 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 in the missing $850 million in the Bitfinex and Tether case, CipherTrace has looked into the risks related to “stable coins,” or those designed to be backed by a stable currency that should theoretically moderate price fluctuations.
The report said that criminals outright 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 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 US exchanges to offshore exchanges increased from 45% from the twelve
months ending Q1 2017 to the twelve months ending 66% in Q1 2019.
This is significant because according to the International Consortium of Investigative Journalists, “$8.7 trillion, 11.5 percent 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
CipherTrace said 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. 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.
The previous 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 nine million euros (approximately US$10.3 million) ransom in Monero, a privacy coin, for a billionaire’s wife, who 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 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, before crypto goes mainstream, it’s going to have to address these problems.