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On Monday morning, November 7, 2022, the Southern District of New York announced a historic conviction and seizure of cryptoassets related to Silk Road.
This prolific dark market offered users access to illicit drugs and goods via the dark web, paid for in cryptocurrencies, from 2011 until 2013, when it was shut down by the FBI. In November 2021, officials seized nearly 51,000 bitcoins from James Zhong, who pleaded guilty this weekend to wire fraud and illegally obtaining cryptocurrencies from the Silk Road dark web market in 2012. The bitcoins were worth $3.36 billion, making him the second-largest financial seizure ever conducted by the Department of Justice.
The missing $3.36 billion in cryptocurrencies has been a mystery that has baffled law enforcement officials for nearly a decade. Zhong employed a series of complex transactions and obfuscation methods that temporarily concealed the destination of these stolen funds—but not effectively enough to remain hidden forever.
In a press release issued by the Department of Justice, US Attorney Damian Williams stated: “Thanks to state-of-the-art cryptocurrency monitoring and good old fashioned police work, law enforcement found and recovered this impressive stash of criminal proceeds. This case shows that we will not stop following money, no matter how expertly hidden, even down to the plate at the bottom of the popcorn can.”
The concealment and money laundering methodologies used by Zhong – and other cybercriminals – can be easily traced when tools like blockchain analytics are used. The blockchain’s immutability and transparency offer real-time insight into all activities on the chain, including those used by Zhong to try to hide his stolen Bitcoins.
As US Attorney Williams notes, on-chain analytics along with off-chain investigative techniques for de-anonymizing or attributing identities to bad actors make hiding on the blockchain almost impossible.
As criminals become more adept at uncovering their tracks, law enforcement and compliance professionals can leverage sophisticated blockchain monitoring tools to stay one step ahead of bad actors. Cryptoasset researchers can take this as a reminder of the enormous value of on-chain analytics in catching cybercriminals.
Read more about what holistic screening is and our crypto crime typologies. Click here to watch Elliptic’s webinar with Special Agent Gary Alford – IRS Criminal Investigation – to learn new ways bad actors are avoiding detection on the blockchain. Gary Alford is the special agent who helped solve the $183 million Silk Road darknet market case.
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