Updated: Jun 8
Europol’s new report, “Cryptocurrencies - Tracing the Evolution of Criminal Finances,” Europol Spotlight Report series, Publications Office of the European Union, Luxembourg, Dec 2021, debunks the following myths:
Myth #1 – Cryptocurrencies have become the payment method of choice for criminals
The use of cryptocurrency as part of criminal schemes is increasing, and the uptake of this payment medium accelerating. However, the overall number and value of cryptocurrency transactions related to criminal activities still represent only a limited share of the criminal economy when compared to cash and other forms of transactions. A range of constraints are related to the use of cryptocurrencies, with high volatility a major factor in criminals’ reluctance to use cryptocurrencies for long-term investments.
Myth #2 – The criminal use of cryptocurrency is limited to cybercrime
The criminal use of cryptocurrency is no longer primarily confined to cybercrime activities, but now relates to all types of crime that require the transmission of monetary value, including fraud and drug trafficking. However, the scale and share of the illicit use of cryptocurrencies as part of criminal activities is difficult to estimate. Criminal networks involved in serious and organised crime also continue to rely on traditional fiat money and transactions to a large degree, in addition to emerging value transfer opportunities.
Myth #3 – Illicit funds flow straight from wallet to wallet
Criminals have become more sophisticated in their use of cryptocurrencies. The illicit funds increasingly travel through a multi-step process involving financial entities, many of which are novel and are not yet part of standardized, regulated financial and payment markets. Obfuscation methods and other countermeasures continue to be developed and used by criminals.
Myth #4 – Cryptocurrencies provide anonymity
Cryptocurrencies are not anonymous. Every single transaction is logged onto the blockchain, which is a ledger of all transactions distributed to all users in the network. Most blockchains are publicly available, making transactions traceable. This gives law enforcement access to substantially more information than a case involving cash. While privacy coins and a number of services and techniques may hinder law enforcement investigations, it does by no means stop law enforcement from finding out who is hiding behind the crime.
Cryptocurrency and its Role in Human Trafficking
Jane Khodarkovsky, April N. Russo, and Lauren E. Britsch, “Prosecuting Sex Trafficking Cases in the Wake of the Backpage Takedown and the World of Cryptocurrency,” Department of Justice, Journal of Federal Law and Practice, Volume 69, Number 3, May 2021, IV. Cryptocurrency and its role in human trafficking (page 116), cited in TRM Labs post. Key take aways:
The decentralized nature of cryptocurrency, the ease of conducting transactions, and the global nature of its use, make it a prime tool for criminals
Because human trafficking is so lucrative and often requires moving around large amounts of money and credit card companies now refuse to process transactions for websites that are suspected of facilitating sex trafficking, cryptocurrency is seen as a successful workaround and is increasingly used to facilitate it
Pamela Clegg, “Fighting Human Trafficking by Following the Money,” CipherTrace, 1 Feb 2020, cites the Anti-Human Trafficking Intelligence Initiative’s list of red flags for:
Little to no living expense transactions
Account is credited through cash deposits, account transfers or email transfers
Deposits are quickly followed by significant transfers to a different account or withdrawn
Cash deposits made in different cities throughout the city, state, region or country
Paychecks from multiple people deposited into a single account
Banking and Hospitality Professionals
When the person is alone, do they make eye contact? Do they speak at a conversational volume?
Do they appear disoriented? Are they tentative in their actions? Is hygiene lacking?
Do they look to the door or another person at a seemingly abnormal frequency?
If the line is long, or a manager is called over to assist, does the person become agitated? Fearful? Do they abandon their items and head for the door?
Are they showing signs of physical abuse? Visible bruises in various stages of healing?
Are they wearing sunglasses indoors?
Does the person show signs of having been denied food, water, sleep, or medical care?
Is there another person with them? Is that person overly attentive? Do they appear to be minding every word said? Are they a translator, or do they speak for the person?
Does the person appear to be coached on what to say, or look to someone else before speaking?
When you are at a place of business, are there indicators that someone lives there?
When observing life around you, is a juvenile acting/dressed in an overly sexualized manner, potentially engaged in commercial sex acts? Is he/she in the company of older men/women who do not appear to be related to them?
If you conduct business in the homes of clients, is the person living in unsuitable conditions?
Does the person lack personal possessions and appear not to have a stable living situation?
Does the person have freedom to come and go as they please? Are there unreasonable security measures? Do doors lock from the inside, or the outside?
Chainanalysis, “Making Cryptocurrency a Part of the Solution to Human Trafficking,” 21 Apr 2020, provides the following red flags that could indicate a cryptocurrency address is transacting with a child sexual abuse material (CSAM) provider:
Frequent transactions in small amounts to one address or group of addresses belonging to the same entity
Frequent transactions between 11PM and 5AM
Cryptocurrency transactions tied to prepaid credit and debit cards
Cryptocurrency payments to known escort services or other adult services providers
Purchase of cryptocurrency tokens specific to the adult industry