Buying Illegal Goods
A person could easily use a cryptocurrency to buy goods online that are illegal. Where you begin, your investigation depends on how you were introduced to the suspect and the activity. It could have been that an online store was shut down by the police, and log files and customer data were provided to you to investigate.
Selling Illegal Goods
Traders of illegal merchandise on the dark web are the most common forms of selling illegal goods (i.e., weapons, drugs, human trafficking, prostitution, etc.). However, many entrepreneurial criminals have branched off into creating businesses that promote false online digital wallets and currency exchanges. Studies have shown that illegal activity accounts for a substantial proportion of the users and trading activity in bitcoin. For example, approximately one-quarter of all users (25%) and close to one-half of bitcoin transactions (44%) are associated with illegal activity.
Theft of Cryptocurrency
Tokyo-based Mt.Gox, the largest bitcoin exchange, was the first high-profile hack in cryptocurrency history. It filed for bankruptcy in 2014 and said it lost 750,000 of its users’ bitcoins and 100,000 of the exchange’s own. In 2018, hackers stole $530 million worth of a lesser-known cryptocurrency called NEM from the Japanese exchange Coincheck.
Businesses are the second most vulnerable group, making up 21 percent of those hacked. In many cases, criminals using ransomware hack the internal system of these companies and demand cryptocurrency as a ransom. Companies don’t have to report a ransomware incident because it does not involve losing personal data.
In 2018, a 21-year-old bitcoin dealer from California was prosecuted for committing numerous illegal money transmissions, and money laundering counts. The individual apparently sold about $750,000 worth of bitcoin to 900 individuals in the U.S. through his bitcoin exchange service. The exchange was not registered as a licensed money transmitter, and the owner intentionally failed to implement anti-money laundering measures. He was accused of one count of illegal money transmission and one count of money laundering. Further, the prosecutors said to fund his “illegal” bitcoin exchange, the owner committed a total of 28 counts of international money laundering, where he wired at least $900,000 in 30 transactions from his bank accounts in the U.S. to Hong Kong-based crypto exchange Bitfinex to buy bitcoin and to avoid ID verification processes after his trading account with U.S.-based crypto exchange Coinbase was closed.
The United States law enforcement authorities have begun cracking down on mainstream financial platforms, which has caused popularity among terrorist financiers, to begin using the Darknet to raise funds through digital currencies like bitcoin. In 2017, a woman was arrested in New York for obtaining $62,000 in bitcoin to send to the Islamic State. After a failed attempt to join the Islamic State 2016, the woman used false information to acquire loans and multiple credit cards, which she then transferred into digital currencies before sending it through Pakistan, China, and Turkey to help fund the activities of the terrorist group. Prosecutors, in this case, accused the woman of fraud and providing material support to a terrorist organization. Coincidentally, around the same time, an Islamic State-affiliated Darknet site called Isdarat, accessible through TOR, sought bitcoin contributions from supporters. The first way to counteract this trend is by investigators being able to tap into criminal error. As we have learned throughout this course, Bitcoin is not as anonymous as is commonly perceived. It uses a blockchain system that serves as a virtual permanent record of all transactions on the network. As such, the blockchain is publicly accessible, meaning anyone with a sufficient level of computer literacy can trace the digital footprints of traders who think that the anonymizing software of TOR is assuring their anonymity.
Extortion / Kidnapping
In 2018, a 13-year-old boy was playing with two friends at a playground in the South African province of Mpumalanga when suddenly, three men in a car pulled up and grabbed him. His parents later received a Bitcoin ransom demand of roughly $120,000 (15 bitcoins). The demand was for a payment of 1 Bitcoin by a certain date, with the remaining 14 coins a week later. A wallet address was included and a message that the kidnappers would kill the boy if the parents did not pay. An apparent break in the case occurred when a family friend showed up shortly after the kidnapping, and after seeing CCTV footage of the crime, he drove around to various bars looking for the suspect car. The friend eventually found the car in question and alerted authorities, taking three men into custody. The boy was returned unharmed.