However, the growing popularity of bitcoin, ethereum and other cryptocurrencies has attracted the attention of both investors and fraudsters. Despite the existing legislation, cryptocurrency fraud still occurs too often, as cryptocurrency transactions attract criminals due to their anonymity and lack of centralized control. In this article, we will analyze examples of illegal work in this sector and its consequences.
Examples of illegal activities in the crypto industry and their consequences:
• Money laundering.
Money laundering is the most widespread of all cryptocurrency crimes, as cryptocurrency is the "perfect" instrument for it.
Criminals often use the anonymity of the blockchain to launder the proceeds of crime (from real-world criminal activity to cybercrime/digital fraud). Typically, criminals use cryptocurrencies to hide the source of illegal money and convert it into cash, which can then be transferred to a bank account (legalized).
For example, in 2013, international law enforcement agencies uncovered a money laundering scheme worth more than $6 billion through the cryptocurrency exchange Liberty Reserve. The company carried out about 55 million transactions to launder funds obtained from cybercrime, bank account hacking, drug trafficking, and child pornography. Its clients included more than a million people from 17 countries. Liberty Reserve was active in the russian market, but in 2016 its founder, Artur Budovsky, was convicted in the United States to twenty years in prison, and his two accomplices were sentenced to five and three years in prison. URL - https://www.justice.gov/opa/pr/liberty-reserve-founder-sentenced-20-years-laundering-hundreds-millions-dollars
On March 12, 2024, a jury in the U.S. District Court for the District of Columbia (USA) convicted Roman Sterlingov (founder and operator of the Bitcoin Frog mixer) of laundering/assisting in the laundering of more than USD 400,000 million over the period from 2011 to 2021. The final verdict will be handed down on July 15, 2024, and Roman Sterlingov will face up to 25 years in prison with property confiscation.
• Cybercrime and cryptocurrency ransomware.
Criminals often use cryptocurrencies to carry out cyberattacks and ransomware. For example, in 2022, an attack on the Poly Network cryptocurrency trading platform resulted in the loss of $610 million.
According to a report by Chainanalysis, a blockchain analysis company, ransomware and darknet markets are the two most common forms of cryptocurrency crime, with revenues increasing in 2023, contrary to general trends.
• Identity theft.
Cryptocurrencies are also used to finance piracy and data theft.
One of the most famous court cases related to identity theft was the Coincheck Hack case in January 2018. In this incident, the Japanese cryptocurrency exchange Coincheck was attacked by hackers who stole personal data of users and funds from their wallets for more than USD 500 million, which was the largest theft in the history of cryptocurrencies for that time.
This hacking attack has become a clear example for other crypto exchanges and proved that they need to fill in the gaps in their software immediately to ensure the safety of their clients' assets, even if a similar attack occurs in the future.
• Investing in scam projects (Scam ICOs).
Some individuals use cryptocurrency Initial Coin Offerings (ICOs) to attract investment in projects that later turn out to be a fraud.
For example, in 2017, the PlexCoin project raised more than $15 million through an ICO, after which it turned out to be a scam. Dominique Lacroix and Sabrina Paradis-Royer (the owners of PlexCoin) were sentenced to pay a fine of more than $7 million for fraud related to the initiation of a scam ICO. URL - https://www.sec.gov/litigation/litreleases/lr-24635
These schemes damage the credibility of cryptocurrencies and the reputation of the entire crypto industry.
• Provision of crypto services without an appropriate cryptocurrency license.
Providing cryptocurrency-related financial services without a license can be dangerous for several reasons.
First of all, it can cause financial losses for clients due to the actions of dishonest operators or illegal asset management. Since money transfers between several parties, there is a significant risk of fraud. Licensing cryptocurrency exchanges and trading platforms helps prevent blockchain technology from being used for illegal purposes, such as money laundering and terrorist financing.
Additionally, it can lead to violations of users' rights, such as protection of their personal data and security of transactions. Without an appropriate license, such activities may also be accompanied by legal consequences, such as fines or even criminal liability of the company's owners/key persons.
The cryptocurrency licensing regulations require license applicants to develop anti-money laundering strategies and implement know your customer (KYC) procedures similar to those used in the banking and securities sectors. Licensees are required to collect and verify customer information, closely monitor transactions to detect suspicious activity, and immediately report any suspicious transactions to the regulatory authorities. In other words, cryptocurrency regulations aim to ensure that licensed businesses in this area operate transparently and in accordance with applicable law.
Thus, licensing is an important part of ensuring the security and legality of cryptocurrency financial services.
Consequently, engaging in illegal activities in the cryptocurrency industry can have serious legal consequences. Persons engaged in such illegal activities, such as money laundering, fraud, or hacking, may be subject to criminal charges and potentially imprisonment. Additionally, the assets of such criminals, as well as the illegally obtained funds, may be confiscated by law enforcement authorities.
Such negative activities may also affect the reputation of the entire cryptocurrency industry, which will increase control and regulation by government and financial institutions.
That is why it is extremely important for individuals and companies to comply with all legal and ethical standards in order to maintain the integrity and trust in the cryptocurrency industry.
