Why law enforcement is struggling to stifle crypto fraud

Why law enforcement is struggling to stifle crypto fraud

Titled “Scammers in Paris,” an online whistleblower known as ZachXBT published a blog in August detailing how a pair of young men stole crypto assets worth millions.

To his surprise, last week French police announced that they had acted on his information and had charged five people.

ZachXBT told AFP that this was the first time his spying had led to police action, though fraud, crypto thefts and thefts worth $250 million were investigated and registered to his 300,000 Twitter followers.

One explanation for the lack of action is that low-level scams are not a priority.

Authorities in the European Union and the United States – the leaders in crypto control – have focused relentlessly on aspects of crypto-crime related to terrorist financing, money laundering, and sanctions-busting.

Arrests have been rare at the federal level in the US – the specialized unit of the Department of Justice indicted only eight suspects in the first half of this year.

US federal agencies have often focused on headline-grabbing suspects such as Heather Morgan, the amateur rapper nicknamed “Razelkhan” who was accused of money laundering in February, and more recently reality TV star Kim Kardashian, who was fined this month for illegally promoting cryptocurrency. .

However, crypto-professional Chainalysis said more than $3.5 billion was lost to scams and hacks between January and July.

AFP contacted police departments and crime agencies in Europe and the United States, but none of them were able to provide figures on liquidation rates or charges related to crypto-related crime.

– ‘Fear of cryptocurrencies’ –

The sheer scale of criminality proves difficult for law enforcement agencies that already lack the resources for financial crime.

Chainalysis is one of several companies rushing to fill the expertise gap, selling their tools and services to agencies including the NYPD.

Former New York Police Chief Terry Monahan said at a recent Chainalysis event that before he stepped down last year, officers would face three crypto-related cases every day.

But they had no way of investigating, so the cases would be closed.

“The victim had nowhere else to go,” he said, noting that federal agencies were only interested in cases worth millions.

Another part of the problem is the direction from the top.

The focus on terrorism and sanctions-busting comes as regulators struggle to determine whether crypto assets are securities or commodities.

If they mock securities, crypto companies will face so many regulations and fines that the sector can be doomed.

Columbia University professor Omid Malkan said the maneuvers of US agencies could be seen as “their fear of what a crypto-centric future might mean for US power at home and abroad.”

If decentralized crypto networks revolutionize finance, American politicians will no longer be able to project power the way they do now with the dollar and banks.

– Very little application –

With Washington and Brussels focusing on high-value targets, low-key fraud victims are often left high and dry.

Some end up asking ZachXBT for help, and he’s got the money back for them.

“I would say there is very little law enforcement in the crypto space,” he said, adding that China is not particularly responsive to his investigation.

But he said US authorities are at least more interested in lower-level fraud.

Ignoring scams has become more difficult since crypto bank Celsius went bankrupt due to $4.7 billion in investors.

Many of those who lost were ordinary folk who sold on the idea of ​​a quick and easy profit.

Their testimony to regulators — retirees robbed their life savings, small investors left contemplating suicide, farm owners who lost their livelihoods — recreated the image of a typical scam victim.

– ‘treasure’ –

Both Monahan and Malkan believe that law enforcement is slowly beginning to take control.

Monahan praised the tracking technology provided by the likes of Chainalysis for allowing some of the money to be returned.

“At least we got something (for the victims), we didn’t take this case and throw it in the trash,” he said.

Malkan says increasingly sophisticated tools are helping to detect fraudsters despite the much-touted anonymity of the blockchain – the digital ledgers where all transactions are stored.

“Once a single participant is revealed, their history across the chain becomes a treasure trove of data to stalk their entire network,” Malkan said.

However, it will be difficult to undo the damage caused by years of inaction.

“I think the lack of enforcement encourages and encourages scammers,” said Molly White, whose “Web3 is cool” project recounts some of the most heinous scams and thefts in the crypto world.

“I think it contributed to the perception that cryptocurrency hacks were essentially risk-free and high-reward, which many were.”

jxb-dho / lcm / mca

#law #enforcement #struggling #stifle #crypto #fraud

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