Crypto-crimewave forces police online to chase ill-gotten assets | cryptocurrencies

In July 2021, specialized police officers in Manchester intervened in an international cryptocurrency scam, seizing USB sticks and an online vault containing £16 million worth of digital coins, mainly ethereum.

A month earlier, Leicestershire police had seized 10 types of cryptocurrency after raiding the home of a drug dealer who used digital assets to buy and sell Class A drugs.

Both operations pale in comparison to the Metropolitan Police’s record attempt the same year, worth £180 million. But all three, and many more, are part of a spreading crypto crime wave exposed today by a series of freedom of information requests.

The Observer data requested from the 45 regional police forces in the UK that requested a breakdown of cryptocurrency seizures since 2017. The information returned by the 27 armed forces that responded reveals a major shift: there has been a significant increase in the number raids and a spread of the kind of digital currency that criminals use to invest the proceeds of their activities.

More than half of the troops who responded seized crypto assets in 2021, confiscating or restricting access to 22 different types of digital currencies. This was a significant increase from 2020, when four types of crypto were seized by eight police forces. In 2019, the figure was even lower, when only two types of digital currencies were seized.

While the best-known digital currencies, such as bitcoin and ethereum, hold more than any other, the numbers reveal its increasing popularity among convicted and suspected criminals of much lesser-known rivals.

“Bitcoin is still the key: It’s digital gold,” said Gurvais Grigg, who spent 23 years with the FBI and now serves as chief technology officer for data consultancy Chainalysis, which helps private companies and law enforcement agencies move cryptocurrencies. to trace. “You have seen this rise of ethereum, ‘stablecoins’ [cryptocurrencies pinned to a real-world asset] and a much more diverse market. As a result, you will find more of those currencies in the pockets of criminals because they take them from people.”

In the Leicestershire case, the police emerged with assets including Enjin Coin, Polkadot, Neo and even Chiliz, the crypto tokens sold to football fans to allow them to access benefits and vote on decisions in their club.

In Wales, the South Wales Regional Organized Crime Unit seized eight crypto assets, including one called Cake, while its South West counterpart seized seven, including the Luxury Coin.

“It’s an emerging field that’s coming at us like a tidal wave, and the police have to adapt to the times,” said Phil Ariss, who coordinates the national police response to crypto crime.

“It’s a big learning curve, but we’re doing well.”

He says 300 police officers have been trained in crypto, and hundreds more will be instructed. But the scale of the challenge is even greater than outlined by the observer freedom of information requests.

While some agencies have not made any seizures themselves, “most are involved in investigations,” he says, as agents work on cases involving between 35 and 40 types of coins.

“It’s not just about investment and theft, in some extreme cases it’s about financing terrorism. It could be buying images of child abuse, money laundering. We see a huge number of cases in law enforcement,” he says.

Most police forces do not disclose the amount of cryptocurrencies for fear that other bad actors, armed with such detailed details, could see when seizures have taken place. Leicestershire Police said it could give them “a warning” about an investigation that could influence them, leading them to take steps to hide ill-gotten gains.

Dyfed-Powys Police, who patrol a predominantly rural area in which Llanelli is the largest town, told the Observer it had taken possession of 82 bitcoins by 2021, valued at £2.5 million at its most recent price.

If the police seize such digital assets, they are not well equipped to store them themselves. Instead, the Avon and Somerset Police Department explains, they outsource that task and store the bounty “in a secure wallet with a third-party provider.”

Matt Damon appears in a Crypto.com ad.
Big name: Matt Damon appears in a Crypto.com ad.

They refuse to name the companies involved, citing security reasons; there is a danger of employees at crypto exchanges being targeted. In 2017, Pavel Lerner, a UK-based exchange worker, was kidnapped in Ukraine by gunmen wearing balaclavas. He was only released after a ransom was paid. Every police force that responded to the FoI requests cited this case as a reason why they would not disclose holders of seized cryptocurrencies.

“The above incident is not the only one of its kind,” said Avon and Somerset Police. “As such, providing information to the general public about the volume of assets stored and where they are stored increases the risk of cyber-attacks, insider threats, and other hostile actions by those who may want to infiltrate the supplier or law enforcement.”

In theory, the growing appeal of cryptocurrency to criminals is clear. Large amounts of money can be quickly sent across borders, to jurisdictions that do not necessarily cooperate with UK law enforcement.

However, according to Grigg, criminals should not be overconfident. Transactions that take place on the blockchain are naturally logged. That means, with the right time and resources, they can be tracked down and perpetrators apprehended long after the crimes have been committed.

Blending services are available on the dark web that allow criminals to launder their crypto and mix it with other types of assets to spread the paper trail and mislead investigators.

But Grigg says determined, well-equipped researchers can get there eventually. “Tracking tools have gotten better and data availability is better,” he says.

The growing number of seizures in the UK is a reflection not only of more crime, he says, but also the growing ability of police officers to stop it. In addition, he points out that the legitimate crypto market has grown faster than the volume of crime-related transactions. Illegal crypto addresses received $14 billion in 2021, according to Chainalysis — a record amount, but an all-time low in terms of share of total volume, at just 0.15%.

But as long as the crypto world grows rapidly, the challenge for law enforcement will grow with it.

A separate freedom of disclosure of information, shared with the Observer, reveals a significant increase in reports of crypto-related fraud last year. According to the City of London police, 9,607 such reports were made to the national hotline Action Fraud last year, up from 5,581 the year before and 3,558 in 2019 losses of more than £200 million.

David Gerard, author of Attack of the 50 Foot Blockchain, says more crypto equals more crime. “More people are using the stuff,” he says. “There are small coins, known as ‘shitcoins’ everywhere these days.

“There will be a lot more scams because more people are promoting it. Times are tough, people are worried, so they are prey to false hopes and get-rich-quick schemes.”

But Ariss points out that the greater the public interest in crypto, the greater the awareness and understanding among the police officers who are trying to prevent ordinary people from becoming victims.

“The [expansion] of crypto in the consciousness of the general public also affects police officers. You just have to go on the tube and you will see ads; crypto companies sponsor sports teams. On Crypto.com you have Matt Damon endorsing it.

“There is an awareness that pervades, and in some ways the challenge [of training officers] is now easier than ever.”

Ariss says British police are keeping pace so far.

“We are in good shape compared to some partners in international law enforcement.

“The wheels of justice are turning slowly, so some of those good news stories haven’t come out yet, but time will tell we’re doing very well.”

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