Report: Crypto Fraud Losses Reach $4.4B In Q3 2019


Looking back at 2019, and at cryptocurrencies, we may well make the declaration that fraudsters got a lot more brazen … which may mean 2020 is the year lawmakers and regulators clamp down through a global, concerted effort to root out financial crime.

It’s no secret that privacy and security are the prisms through which authorities have looked, and are looking, at Libra and other digital coins. The backlash against Facebook’s planned cryptocurrency Libra, waged in the spotlight of Capitol Hill, has included calls by lawmakers for a moratorium on the development of the coin and the Calibra digital wallet.

In recent announcements, the numbers have been supporting the argument that cryptos are becoming a favored avenue of theft and fraud. Consider the fact that, as estimated by CipherTrace’s third-quarter report for 2019, the total volume of fraud tied to crypto shows losses in the range of $4.4 billion.

Looking at theft done through the exchanges, it might seem to be getting a bit better: The CipherTrace report noted that the total bilked from crypto exchanges, at $15.5 million, was the lowest tally seen in years. This would indicate that some efforts, such as know your customer (KYC) and anti-money laundering (AML), when deployed by the exchanges, are having a positive impact.

But look at the larger picture, and the data are a bit more sobering. The $4.4 billion number is a huge jump from the $1.7 billion in fraud and theft seen last year. Part of the jump is due to the sheer size of a few thefts, such as the roughly $3 billion worth of bitcoin (roughly 1 percent of the supply) that was siphoned off through a Ponzi scheme in Asia. In that case, fraudsters hawking PlusToken promised investors returns — monthly returns, no less — of as much as 30 percent. Chinese authorities arrested six members of a team over the summer who had lured average citizens to the scam.

The PlusToken ruse, and others like it, tend to prey on individual investors, sometimes finding easy marks in a lack of sophistication, or perhaps greed. Here, at work, is the old-fashioned sales pitch.

But beyond the sales pitch, technology, too, can be an aid to a crime. Last week, a Slovakian security firm, Eset, found that crypto mining malware — distributed through YouTube — has infected half a million devices and helped grab coins.

A Grander Stage

But beyond the scope of individuals or teams that look toward cryptos for ill-gotten gains … lie nation states that see cryptos as a way to operate in the dark, in a bid to foster illicit activities, too.

North Korea stands out in this respect. The United Nations Security Council said this past summer that North Korea has made off with about $2 billion though its efforts to hack banks and crypto exchanges. The initial targets seem have been South Korea, and the hacks have attempted to raise money for North Korea’s Weapons of Mass Destruction program.

A bit closer to home, and according to a press release issued late last month by the Department of Justice, Virgil Griffith, a U.S. citizen and Singapore resident, was arrested for traveling to North Korea and delivering a presentation. The subject: how crypto and blockchain might be used by North Korea to evade economic sanctions that have been imposed on that country.

Griffith’s journey, and the presentation, allegedly occurred even though the Justice Department had denied permission for such travel. Federal investigators, according to reports in The New York Times and elsewhere, have stated that Griffith’s talk in North Korea focused on how cryptos can be used to launder money. He has been accused of conspiring with North Korea and may face 20 years in prison.

According to the complaint, Griffith had made efforts to show how North Korea can “achieve independence from the global banking system” and also had sought to “facilitate the exchange” of a digital currency between North Korea and South Korea. The Justice Department also said Griffith had stated his intention to renounce U.S. citizenship.

The Griffith news hearkens back to a presentation retired Admiral James Stavridis, former supreme allied commander of NATO, gave at a PYMNTS conference a bit more than two years ago.

Back then, he noted “three rings” of cybersecurity issues: One is hacktivism, driven by threats and terrorism; another is financial security and the third is national competition across cyberspace. Cryptocurrencies tie into all three issues: hackers, promoting the interests of their nation-state (and perhaps even employed by the nation-state), attack the financial security of others. The technology aspect of digital currency is now, too, becoming a competitive issue on a broad stage. As has been widely reported, any number of central banks (the U.S. and China among them) are exploring or actively bringing to market their own digital currencies. Wave by wave, then, it seems that economic warfare, increasingly, might be waged on digital seas.