The Myth of Cryptocriminal Anonymity (guest post by Syed Rahman)

Syed Rahman, British financial crime expert Rahman Ravelli, explains how his case illustrates the sophistication of those involved in cryptocurrency crime – and dispels the myth that they can remain anonymous.

There is no doubt that the world of cryptocurrencies is evolving rapidly. It is also the case that those who consider cryptocurrencies as a means of making illicit profits are adept at keeping pace with such developments. This presented significant problems to many innocent cryptocurrency users. There have been many cases of those who only realized after the event that they had been scammed in cryptocurrency transactions or that their cryptocurrency accounts had been hacked.

Part of the appeal of cryptocurrency to those who want to use it for fraud is the lack of regulation covering it. As cryptocurrency is a relatively new concept, its users are still coming to terms with what it offers and the potential benefits, while authorities grapple with the legal problems it has – and will – produce. As a result, the issue of regulation is barely out of the starting blocks – and those who want to profit illicitly from it are well aware of it. This has been shown time and time again, and such individuals seem to be one step ahead of the authorities.

This desire to commit crypto-related crimes while retaining the advantages that exist has led to the continuous refinement and adaptation of techniques used to profit from crypto fraud. As a result, people are faced with the realization that they have lost their possessions and must accept the daunting, uncomfortable challenge of determining exactly how they were taken, who took them and where they are now. Then comes the need to work out the best way to approach their recovery.

It goes without saying that it is far more complex to trace and recover crypto-assets than to find and recover tangible items such as, for example, jewelry or valuable historical artifacts. The nature of cryptocurrency, the limited amount of information that can be obtained about cryptocurrency users and cryptocurrency exchanges – where much of the illegal activity takes place – and the ability of fraudsters to use these factors to their advantage are all present difficulties.

Crypto crime planning

In a case where I represented the applicant, fraudsters hacked into my client’s cryptocurrency accounts held on the Binance exchange. The hackers were unable to remove the assets from the account due to the safeguards in place. But that didn’t deter them. Instead of conventionally removing the assets, they traded them for a fraction of their real value to a third party connected to them. They then resold those assets at their respective values ​​before removing the exchange proceeds.

This was, in effect, a reverse pump-and-dump stock sale practice: instead of using fraudulent means to inflate the value of the stock in order to sell it at a huge profit, the hackers sold the assets to an accomplice at ridiculously low prices and relied on him to sell them as would make a profit for them. Due to this activity, my client faced losses estimated at over $2.6 million. Notably, while the account restrictions on the stock exchange made it impossible for hackers to simply take what was in the accounts, they planned their actions so that they could get around this by abusing the trading system to generate illegal profits that they could then remove and keep for themselves.

There is obviously a lot of thought put into their actions. This was a practice that had not come to light before this case. It represents a step forward in terms of cryptocurrency crime, as those who commit it have carefully worked out how safeguards can be rendered ineffective. It is also one of the most prominent indicators of the degree of imagination and planning employed by those who wish to achieve such gains. The world of cryptocurrencies is still evolving and there is no doubt that the evolution of strategies used by those involved in crypto-related crime is progressing just as quickly.

The problems highlighted in our case require strong action. Such questions are very likely to be a feature of many ongoing and future investigations into cryptocurrencies. Some independent observers will argue that cryptocurrency is a problem in dire need of greater oversight by regulators. They will point out that, at least until now, regulation has been both limited and long overdue. This is perhaps the most obvious tactic to combat crypto crime. But it would also greatly benefit from cryptocurrency exchanges communicating more with their users, to promote greater awareness of the risks and how they can be identified and mitigated. In many ways, it’s also up to everyone involved in cryptocurrencies to learn from cases like this, and any resulting legal developments, in order to fine-tune existing safeguards or introduce new ones. If such action is taken, it may go some way to ensuring that fewer people have to seek the help of the courts to recover what is rightfully theirs.

The myth of anonymity

For those who come to court seeking recovery of assets lost to crypto fraud, our High Court case I referred to, Fetch AI Limited, Fetch AI Foundation PTE c Unknown persons, Binance Holdings and Binance Marketscan prove to be very helpful. The judge agreed with the ruling in the previous case Ion Science c Unknown persons that the location of the cryptocurrency was important in considering whether a court has jurisdiction over unknown persons whose location is unknown. The judge in this case also followed an earlier case by stating that Bankers Trust’s order could, in principle, be served out of jurisdiction against the cryptocurrency exchange, forcing it to release details of the accounts used in the fraud.

In short, the High Court in London ordered Binance to identify those who carried out the hack and to freeze their accounts. It’s a case that establishes the principle that cryptocurrency exchanges should do everything they can to identify those who use their facilities to make illicit profits. But it also goes a long way to debunking the myth that those involved in crypto-crime can always rely on anonymity to help them avoid detection. Although the information available regarding cryptocurrencies has often been limited, the idea that those who commit cryptocurrency fraud can operate without fear of identification has always been a misconception.

By using the right tools and properly applying the most appropriate procedures, it is possible to track, locate and recover illegally seized cryptoassets. Anyone who believes they can be protected by a permanent mask of anonymity while conducting their illegal cryptocurrency activity is sorely mistaken. The fact that in our case the court ordered one of the largest cryptocurrency exchanges in the world to help identify those behind the crime is undoubtedly the clearest evidence that the anonymity of cryptocurrencies did not exist and does not exist.

Future prospects

The prospect of sudden and large gains through investing in cryptocurrencies has led to its rise in popularity. This led to a tear-jerking increase in the value of numerous cryptocurrencies which in turn caused even greater demand. One unfortunate but inevitable consequence of this cryptocurrency boom is that the potential for greater wealth and greater profits also makes cryptocurrencies even more attractive to those looking to make fake profits. The prospect of more such crimes cannot therefore be ruled out.

It is not pessimistic to predict that in the future there will be many parties looking to the law to help them locate and recover crypto assets that have been illegally taken from them. All of them will face the unenviable task of trying to recover the property that is rightfully theirs without knowing who took it and where they are right now. In our case, the High Court has at least made it easier for people in such situations to find out who is to blame for their losses.

The High Court ruling highlights the fact that those involved in cryptocurrency breaches cannot assume they will benefit from secrecy. It remains to be seen how much they will be deterred by the prospect of being exposed. But it certainly offers hope—and a clear course of action—to those who want to recover cryptoassets that have been illegally taken from them.

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