Depth | Virtual Money Laundering Shady: Transfer assets for a few minutes, two years, $ 90 million
Last year, CipherTrace, a US-based blockchain anti-money laundering company, released a digital cryptocurrency anti-money laundering report showing that in the past two years, hackers have stolen more than $1.2 billion in stolen money from the exchange and are unable to count. Digital cryptocurrencies such as offline loans and ransoms are washed through exchanges and money laundering service providers.
In recent years, cryptocurrencies such as Bitcoin have seen phenomenal price spikes that have attracted not only investors but also speculators and cyber hackers.
In the past two years alone, a handful of extremely clever criminals have stolen $1.2 billion worth of cryptocurrencies from various exchanges.
Exchanges, gambling sites, and cheap blockchain transfers allow shackles to quickly move from black to white, making it difficult for government law enforcers to track asset sources.
In the first half of 2018 alone, cryptocurrency crimes have tripled in 2017, and this trend will continue to expand in the future.
Criminals begin to fall in love with Bitcoin money laundering
According to the US Federal Bureau of Investigation (FBI) report, from 2015 to 2017, the number of cases related to virtual currency increased nearly six times.
All these illegal funds have been whitewashed by criminals. Only in this way can they help them hide their identity and avoid being trapped.
Opening the door to terrorism
In addition to these criminals, we have seen more and more terrorist financing and some national-level criminal activities are also using cryptocurrencies, especially bitcoin, which is used to pay for drugs and weapons.
Criminals are often early adopters of new technologies. So it’s no surprise that Bitcoin and other virtual currencies are attracting their interest.
Virtual currency has unique attributes: cryptocurrency transactions do not require the use of real names and bank accounts, so criminals can avoid the monitoring of law enforcement officers and other investigators; criminals can use pseudonyms in transactions, and virtual currency transactions are not transferred. Banks are required to provide intermediary services.
In addition, unlike real-life guns, virtual money thieves can ransack the exchange without fear of being caught.
Global regulators focus on virtual money laundering
The favor of criminals has led to a significant increase in virtual currency theft and illegal use, which has caught the attention of regulators.
Government agencies around the world are concerned not only with the impact of virtual currency theft and extortion on individuals and businesses, but also on how virtual money can drive money laundering.
Because once cryptocurrencies are stolen from the exchange or acquired from other illegal activities, cybercriminals need to re-inject them into the blockchain system and clean them before they can be redeemed for In the real world.
For the money laundering through the blockchain, law enforcement can't do anything about it.
Global attention to anti-money laundering
The stolen coins must be cleaned before they can be used, causing global attention to anti-money laundering.
The total amount of cryptocurrencies stolen in the first half of 2018 is almost three times the total for 2017. These funds need to be cleaned up by criminals to prevent their identity from being seen by law enforcement agencies.
The Financial Crimes Enforcement Network has recently expressed similar concerns. In the past two years, there have been a lot of ransom payments in cryptocurrency, and hackers have also stolen $1.5 billion worth of cryptocurrencies from the exchange.
US Deputy Treasury Secretary Thomas Ott concluded: "We have seen billions of dollars in virtual currency being used for suspicious activity."
The US Secret Service is also studying how cryptocurrencies such as Monroe and Zcash are used for illegal activities, and the agency is also urging the US Congress to "consider legislative or regulatory action."
On June 20, 2018, the Secret Service announced that they had “acquired more than $28 million in cryptocurrencies during the criminal investigation process, and that 12 of the 2015 seizures were in the form of bitcoin.”
The deputy director-general of the agency said at the congressional hearing: "This is crucial for the United States. We must continue to promote the control of digital currency at the international level through the Financial Action Task Force. We should also consider Take more legislative or regulatory action to address the challenges associated with anonymizing cryptocurrencies, such as those that attempt to blur the trading behavior on the blockchain and use funds with mixers and tumblers Enter the cryptocurrency pool."
Other parts of the US government are also actively seeking to enact new regulations to bind cryptocurrencies.
At a recent congressional hearing, North Carolina congressman Robert Pittenger said illegal use of cryptocurrencies was "one of the biggest threats to US national security."
The US Federal Bureau of Investigation (FBI) pointed out that the value of virtual currency involved in the relevant reports received by the Internet Crime Center in 2017 has reached $58.3 million.
These virtual currencies are usually required by online extortionists to pay for ransom, usually in the form of bitcoin.
The agency also pointed out that "the use of virtual currency as a payment method is often used by online extortion because it provides criminals with additional anonymity protection."
How does virtual currency wash money?
Hide the illegal source of money, which is commonly known as money laundering.
Criminals have also made great efforts in money laundering, and their technology and means are also advancing with the times.
Money laundering in the era of cryptocurrency can be completely different from the mafia era. Mafia bought a number of laundries (the source of the word laundery) and mixed the money with legitimate business income to cover up the organization. Illegal profits from prostitution and smuggling.
With the emergence of more and more cryptocurrence thieves, more and more cryptocurrencies are used by terrorists, extortionists, identity thieves, drug dealers, arms dealers and traffickers, which has opened a new era of high-tech virtual money laundering.
But unlike cash, the process of cleaning up this cryptocurrency is a bit more complicated.
The first step in money laundering in virtual currency is to layer it.
In the traditional money laundering process, this process involves the use of money to buy expensive items such as gold bars, cars, jewelry or real estate, and then resell them.
In the virtual world, this process involves moving virtual currency into a cryptocurrency system by using mixers and tumblers. (Note: Mixers and tumblers refer to a group with different addresses and transaction records.) Bitcoin then returns another set of bitcoins of equal value) and the blockchain moves it back and forth.
How to launder money?
First, go to the new address
First, the criminal will transfer the stolen bitcoin to the address owned by the money launderer. This address is still not clean enough because it has a clear connection to the victim's address.
The money launderer then transfers the same amount of bitcoin from other users to a new "clean" address in the hands of the criminal.
However, money launderers will not transfer large amounts of virtual currency at once, because it is easy to attract attention, and money launderers will use a small amount to transfer the cleaned virtual currency back several times.
The more expensive the virtual currency in the money laundering, the more careful it is, and the operation will try to extend the span between each share.
This means that the more money that enters the system, the more frequent it is transferred, and the more difficult it is for investigators to trace the source of the path through the network.
In addition, the anonymity of virtual currency makes it much harder to track these money than the final cash.
It is worth noting that criminals lose one percentage point in transferring these virtual currency loans, but as long as these funds become legal, the loss is worthwhile.
Second, integration
The second step in money laundering is integration. After the illegally obtained funds are injected into the cryptocurrency system, they are then placed in a virtual shell and the criminals are unrestricted and relatively safe to use the ill-gotten wealth. A step closer.
The integration of these funds into the mainstream tiered exchanges, OTC and other cryptocurrency financial systems still exposes the risk, because exchanges participating in cryptocurrency trading activities and other third parties will monitor trading activities and may issue suspicious activity reports. (Suspicious Activity Reports), which marks those high-risk transactions.
Detailed explanation of five modes of virtual currency money laundering
Criminals use the money laundering and terrorist financing risks of virtual currency, and there are five main ways to implement money laundering and terrorist financing:
- Money laundering using virtual currency
The quickness, irrevocability and anonymity of virtual currency make virtual currency a favorite means of money laundering for criminals.
Cybercriminals and money launderers often use systems such as digital currency or electronic money. These systems have different degrees of anonymity depending on the issuer, and usually provide timely settlement, almost no revocation of payment; The systems used by criminals include (but are not limited to) electronic gold, free dollars, free reserves, and so on.
Second, the use of management and traders money laundering
Virtual currency managers and traders are regulated to varying degrees in different countries. The international nature of virtual currency itself challenges the detection and investigation of crime proceeds.
The European Commission’s Global Project on Cybercrime and the Expert Committee on the Evaluation of Anti-Money Laundering and Counter-Terrorism Financing have repeatedly highlighted this issue.
In fact, Internet-based payment service providers are not fully regulated and regulated in anti-money laundering and counter-terrorism financing. There are weak or non-existent regulatory controls at the operational level, and there are no or insufficient Sanctions are an important risk factor for both countries and businesses; one of the difficulties in registering and regulating these entities is that even if there are registration and regulatory mechanisms, there is often a discrepancy between the country of registration and the country of operation. The problem.
Therefore, under this model, criminals will use different countries to launder money in regulating and supervising the gaps or differences between virtual currency managers and traders. Virtual currency managers and traders are the targets of money launderers, but Unintentionally directly involved in money laundering.
Another model is that managers and traders or their employees become accomplices in money laundering and deliberately participate directly in money laundering.
As the Anti-Money Laundering Financial Action Task Force pointed out, some prepaid cards and Internet payment service providers or their employees are controlled by criminals, willingly or recklessly assist criminals in the implementation of money laundering and terrorist financing activities;
In such cases, market access restrictions, such as appropriate testing, fail, or cannot be applied to the entity under its jurisdiction.
In short, in this model, criminals either arrange virtual currency managers or traders from a legal or business model, either choose to set up managers or traders in countries with weak management mechanisms, or choose to use weak management mechanisms. The country's managers or dealers to achieve the purpose of using their weak regulatory mechanisms to implement money laundering; or colluding with virtual currency managers or dealers to implement money laundering activities; or using virtual currency dealers to achieve different kinds of virtual currency Multiple conversions to achieve its purpose of concealing or disguising the source and nature of illicit funds.
Third, the use of third party capital injection
Using peer-to-peer transfers as a source of funding for virtual currency purchases may allow third-party accomplices to inject funds into virtual currency accounts for the purpose of cleaning up criminal proceeds. Money may be used to help clean the proceeds of crime through the Internet. For example, a bank account can receive funds from other online bank accounts and then transfer the funds to other accounts, or cash them out, and then transfer them using another means such as a money transfer system or digital currency. . Qian Hao got a commission for this, which is also part of the deal. It is worth noting that the money handled by Qian Qian can be used as a source of funds for virtual currency.
In fact, third parties may be willing to participate in money laundering, or they may be deceived without knowing it and act as money. The usual technique for recruiting uninformed money is through advertising on the job site. These positions often use words such as “financial manager” or “work at home” when defining responsibilities.
- Money laundering using the non-face-to-face nature of virtual currency
Most virtual currency transactions require little or no face-to-face contact. This makes it possible for criminals to abuse virtual currency for money laundering. This abuse is divided into two situations:
First, criminals control the accounts of legitimate users and use them to engage in transactions.
On the one hand, criminals will crack the non-virtual currency accounts of legitimate users, steal funds from them, and use them to inject funds into virtual currency accounts. As reported by the Anti-Money Laundering Financial Action Task Force, in a number of cases, new payment method tools have been used to clean up fraudulent crimes originating from identity theft or to steal bank accounts, credit or debit cards through computer hacking or fishing. Illegal gains from financial crimes; since a bank account, credit card or debit card is held in the name of a legitimate user, the criminal can use it as a current account to fund a prepaid card or Internet payment service account;
Under such circumstances, the new payment method provider cannot detect that the transaction is not actually initiated by a legitimate user, nor can it detect any suspicious activity. On the other hand, criminals will crack the identity of legitimate users and use it to open a virtual currency account and then use it as a transit account to cleanse the proceeds of crime. In some cases, criminals use stolen or false identities to open new payment method accounts and use them as transit accounts for cleaning illegal gains, or for criminal activities (such as fraud) and money laundering.
The second is to use the non-face-to-face nature of the new payment method, mainly to use the anonymity of certain services to engage in money laundering.
In some countries, electronic money payment services can be used anonymously. It is worth noting that electronic money is circulating outside the bank and is therefore far from the banking supervision system. The bank acts as an agent, allowing funds to flow in and out of the electronic payment system and, in some cases, acting as an issuer of electronic money. However, evidence on transactions between financial institutions and virtual currencies is very limited. In fact, more and more central banks have issued warnings to users. Contrary to virtual currency, the use of electronic money (the digital form of legal tender) is of course increasingly popular, but this form of digital currency is regulated by a formal financial regulatory system.
In short, the types of money laundering related to the non-face-to-face nature of virtual currency can be divided into two categories:
One is to use the anonymity of some virtual currency itself, such as Bitcoin's decentralized virtual currency itself has a higher anonymity, mainly because there is no connection between the bitcoin address and the real world identity;
The second is to use the ability to inject funds into virtual currency accounts anonymously. Both centralized virtual currency and decentralized virtual currency can be injected anonymously, mainly due to the non-face-to-face nature of the transaction relationship and the ability to be funded by a third party. risks of.
- Combine money laundering with other money laundering methods
Virtual currency can be used in conjunction with other payment technologies, especially with prepaid cards, as a source of funding, thereby incorporating multiple money laundering methods into the process of cleaning up criminal proceeds. Internet payment services are increasingly linked to a variety of new and traditional payment services, and funds can now be transferred or transferred through various payment methods, including cash, money remittance companies (such as Western Union), new payment methods, banks. Wire transfer, credit card, etc. And some Internet payment service providers have begun to issue prepaid cards to customers, allowing customers to withdraw cash through a worldwide network of ATMs.
Unlike traditional money laundering mechanisms that use banking systems, online money laundering relies on a variety of operational and financial service providers, including bank transfers, cash access, electronic money, money, and money remittance services.
Therefore, it is difficult for law enforcement agencies to detect and track criminal capital flows. Cash operations, usually implemented by money, often break the chain, and money is sometimes followed by traditional payment services. If various payment services are combined with Internet payment services, the funds can be quickly converted into electronic money that can be almost anonymously transferred to other countries.
Virtual money laundering industry is huge
Many teams and companies now offer virtual currency money laundering services, which can be retrieved online through keywords such as mixer, tumbler, fogger, and landries.
They will collect funds from different customers, then mix them together, and then return the mixed and whitewashed funds to the customer.
The purpose of this is to disrupt the information of the payee and the payer on the blockchain, so that people can't find the source and the clue.
Such money laundering services generally charge a handling fee of 1-3% of the total amount.
However, many teams have stopped such services because of government regulatory upgrades, for example, the Bitmixer team terminated the money laundering service in July 2017.
However, the CipherTrace team found that such services are being advertised through advertising channels such as social networks to gain more new customers to expand revenue.
Virtual money laundering services require a large amount of funds to be deposited by the service provider, such as multi-million dollar bitcoin or other virtual currency, while keeping funds in different accounts.
In 2016 and 2017, these fund accounts will be grouped together and transferred multiple times to hide the information of payees and payers.
In the second half of 2017 and the first half of 2018, the money laundering service began to upgrade the money laundering tools (virtual currency), so that the deposit and withdrawal tools were separated.
After the money laundering service team gets the black money, it will transfer to the fund pool, then transfer the coins in the fund pool to the exchange, then turn around the exchange currency, and finally withdraw it with the new virtual currency.
This approach can not only reduce the cost of transfer, but also use the international exchange to set up more than two international auditing barriers.
Virtual currency gambling can also launder money
Virtual currency gambling can also achieve money laundering, and is therefore increasingly popular with money launderers.
There are now 100-200 gambling websites around the world that can pay for gambling in virtual currency.
Criminals open accounts on these sites, then transfer funds to accounts, then make small gambling , and some don't even gamble , then withdraw coins to new addresses.
In this way, the follow-up path of the law enforcement will be broken, and the effect is similar to that mentioned above.
Because gambling websites do not need real-name certification, KYC will not be carried out, so it is difficult for law enforcement agencies to know who is going to gambling websites to vouch for coins and coins.
According to Kevin O'Connor of FinCEN, cryptocurrency exchanges must also be included in the regulation of anti-money laundering controls, as encrypted assets can also be converted into fiat currencies and other financial assets.
In addition, when asked about offshore cryptocurrency exchanges and online currency swap trading platform Shapeshift.io
When he was responsible, his answer was that as long as these platforms deal with US customers, they must comply with US anti-money laundering regulations.
The Office of Foreign Assets Control (OFAC) of the US Treasury has issued a list of not allowing US companies to conduct business with them, including individuals, companies, websites, bank accounts, and countries. OFAC is ready to add some cryptocurrency addresses to this list for attention.
FinCEN has said that exchanges must master the situation of their opponents, such as in which countries they are in, whether they are already on the OFAC list.
This is a good idea, but it also involves a bunch of questions, such as how to find the best technical tools and practices to identify these illegal trading activities.
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Compared with other financial instruments, virtual currency is more convenient for money launderers. They no longer need to find people to use dirty money to buy gold, buy real goods and then sell them for money.
For law enforcement agencies, it has become increasingly difficult to find money laundering, and it is increasingly difficult to pursue the source and destination of funds.
In the past, as long as the FBI's agents had enough intelligence, they could see the people on the street changing hands when they stood at the top of the building with a telescope.
But in the blockchain, they need more professional technology to combat cybercrime, which also creates a need to combat blockchain financial crimes. Law enforcement departments need “de-anonymous” blockchain technology to combat the use of bitcoin. Money laundering of virtual currency such as Monroe.