Law enforcement officials and regulators have long had issues with crypto exchanges over the fact that billions in “dirty money” have found refuge under the anonymity that the digital blockchain provides. Crime intelligence agencies had to go to great lengths in 2013 to shut down the infamous Silk Road, a known haven at the time for drug runners and all manner of illicit criminal activity on the Dark Web, but only transacted in Bitcoin. The news today is that a crime agency in Australia took a much shorter route and suspended the licenses for two local crypto exchanges.
The Australian Transaction Reports and Analysis Centre (AUSTRAC), a government financial intelligence agency whose specific mission is to prevent money laundering, tax evasion, welfare fraud, and terrorism, determined to its satisfaction that association with known criminal types was cause enough to step in and take action. The agency had arrested a 27-year-old man on several drug trafficking-related charges, but during its investigation, the AUSTRAC staff found that the accused man “was a key member” of the crypto exchange businesses, the grounds for the suspension actions that followed.
AUSTRAC was operating under new legislation that had expended its roll and given it the authority to attack fraud in the crypto ecosphere using such tactics. It is no mystery that fraud and criminal activity has been rampant in the crypto world. Recent research reports have disclosed that nearly $2 billion in exchange compromises and ICO scams occurred in 2018. The FCA in the UK has also revealed that, “Investment scams related to crypto led to over $255 million in investor losses in 2018, with approximately 5,000 reported cases.” Lastly, the South Korean Supreme Prosecutors’ Office created a new task force to fight cryptocurrency-related scams.
While many of the larger scale criminal compromises of exchanges have been coordinated supposedly by the Lazarus Group, a known professional hacking gang acting at the behest of the North Korean government, the presence of dirty money in the crypto world never was curtailed following the closure of the Silk Road. The eBay of vice, as it was known in the day, catered to drug dealers, gunrunners, and document forgers, to name just a few, which hid behind a curtain of anonymity and laundered its illicit gains from across the globe. The FBI closed the operation only after infiltrating its ranks.
The Australian crime agency did not name the two exchanges. This suspension action was the first of its kind, but may not be the last. It remains to be seen if other domestic crime agencies around the world follow Australia’s lead. There have been many entreaties to the crypto community to clean up its act or else. Regulation may help to a degree, but the anonymity aspect, treasured by many crypto zealots as a right of privacy to be protected at all costs, must be sacrificed to a degree or law enforcement officials across the globe will never allow cryptocurrencies to ascend to the next level of maturity.
While full regulation may be a ways off, AML (Anti-Money Laundering) and KYC (Know Your Customer) legislation is already on the books. Crypto exchanges must comply or face retribution. Matt Craft, Cybercrime Squad commander and Detective Superintendent, made this point very clear:
“While cash is still ‘king’, digital currencies are fast becoming the preferred choice for organized criminal networks involved in money laundering, funding terrorism, and cybercrimes. Let this be a warning to digital currency exchange providers: if you fail to comply with your obligations, your actions will not go unnoticed.”