Crypto Crime: Exchanges Key to Catching Crooks



A British al-Qaida supporter was just sentenced to 16 months in jail for cryptocurrency trading and using bitcoin to buy stolen credit card information. Coinbase helped put him there.
The investigation of Khuram Iqbal began when publicly traded, U.S.-based cryptocurrency exchange Coinbase issued a suspicious activity report, according to a Dec. 21 report in BBC News.
The Cardiff, Wales, resident had been jailed in 2016 for possessing and disseminating copies of Inspire, an al-Qaida magazine, and making nearly 850 Facebook and Twitter posts “about violent jihad” under the name Abu Irhaab, which the BBC said is Arabic for “father of terrorism.”
The end of that prison term came with a 10-year “notification order” that required Iqbal to report any cryptocurrency accounts to police. He reportedly made nearly 400 trades in the two accounts over a 3.5-year period, depositing a total of about $16,000 (12,000 pounds).
Good Corporate Citizen
Coinbase has a history of cooperating with law enforcement agencies and regulators in the U.S. and abroad, part of its strategy of being known as a compliant exchange.
It also issues public “transparency reports” about these requests. In the first three quarters of 2021, the exchange received 5,562 requests from criminal and civil regulatory enforcement agencies, according to a Dec. 15 blog post by Coinbase Chief Legal Officer Paul Grewal. The vast majority — 93% — were part of criminal investigations, he said.
Slightly more than half of those 5,562 requests came from outside the U.S., with Britain’s 1,044 requests making it the No. 2 requestor of information. U.S. agencies made 2,727 requests for information.
And crypto crime is certainly up. According to blockchain intelligence firm Chainalysis’ 2022 Crypto Crime Report, cryptocurrency investors lost $7.7 billion lost to scammers. That was an increase of 81% over 2020.
See also: 2021 Crypto Scams Top $7.7B, Fueled by DeFi-Friendly ‘Rug Pulls’
Given the way the cryptocurrency industry — or at least the older part of it — is so heavily entwined with a libertarian ethos instilled by bitcoin’s pseudonymous creator, Satoshi Nakamoto, Coinbase is very clear to both tout its cooperation with law enforcement and defend it to customers.
“At Coinbase, the safety of our customers is very important to us, and we respect the key role of law enforcement and government agencies in pursuing bad actors who engage in prohibited activity or seek to abuse our platform,” Grewal wrote. “At the same time, protecting the financial privacy of our customers is a fundamental part of our commitment to being the most trusted place to engage with cryptocurrency.”
Double-Edged Sword
Despite law enforcement agencies’ increasing familiarity with tracking bitcoin and cryptocurrency, there are still widespread misunderstandings.
At Iqbal’s sentencing, the judge said that the “very nature of cryptocurrency is that it is untraceable,” adding “with both your emails and cryptocurrency accounts below the surface, you were able to conduct in numerical terms a considerable amount of trading in cryptocurrency under the radar of the requirements in circumstances where that should not have been the case.”
That’s not entirely true.
It is harder to trace crime and track criminals using crypto. However, there’s a double-edged sword to crypto crime.
“Because of the permissionless nature of blockchain, it is much more difficult and much more costly to find the perpetrators,” Hanna Halaburda, an associate professor of technology, operations and statistics at NYU’s Stern School of Business, told PYMNTS’ Karen Webster in a recent interview.
However, Halaburda added, “once we find them, it’s actually easier to prosecute them because the proof is there on the blockchain.”
And as the Coinbase numbers show — and request from enforcement agencies are up 27% in the first three quarters year over year — law enforcement is getting better at it.
In the Secret Service’s Dec. 21 announcement of the establishment of a task force to track the $100 billion fraudsters looted from various COVID relief funds ranging from unemployment insurance benefits to Small Business Administration loan, Assistant Special Agent in Charge Roy Dotson — the new national pandemic fraud recovery coordinator — highlighted cryptocurrency’s part in that investigation.
“As national coordinator, ASAIC Dotson is also spearheading cryptocurrency investigations involving the use of unsuspecting victims as money mules to move stolen funds from one account to another within the cyber arena,” the U.S. Treasury Department law enforcement agency said in a release. “Criminals will often ask potential victims to open an account and move money for them for some reason as part of a ruse,” such as an online romance or phony job offer.
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