Shaurya Malwa · 3 hours ago · 3 min read
A report released by cybersecurity company CipherTrace on Oct. 9th revealed that cryptocurrency theft via hacking attacks on exchanges and trading platforms was up 250 percent since 2017, totaling $927M in the first nine months of 2018.
A Massive Uptick
The data was part of CipherTrace’s Q3 anti-money laundering report, which also found that almost all criminal bitcoin was received through exchanges located in countries with weak anti-money laundering (AML) laws. The report stated:
“These results indicate that money laundering activity using cryptocurrencies is directly correlated to AML regulations and their enforcement on exchanges. They also show that cryptocurrency exchanges in countries with weak AML regulation receive nearly 5% of their payments directly from criminal sources. This analysis does not cover indirect criminal payments.”
Last year, the total amount of cryptocurrencies stolen from exchanges added up to much less: $266M. CipherTrace’s report showed a surge in thefts in the $20-30M range in the third fiscal quarter of 2018 adding up to $173M on their own.
— ciphertrace (@ciphertrace) October 10, 2018
The report states that known criminal actors have laundered billions in cryptocurrency payments through exchanges with lax regulation, rendering it effectively “clean” before moving the funds undetected into the larger global financial system. According to the report, the top cryptocurrency exchanges used to launder these criminal payments moved the equivalent of $2.5 billion in Bitcoin at today’s market price.
Reuters also reports that these exchanges were used to purchase over 1BN in criminal services. The trouble with money laundering, said CipherTrace CEO Dave Jevans in an interview with the publication, is that efforts to combat money laundering are largely reactive:
“All exchanges get these money-laundered funds. You really can’t stop them,” he said. “And here’s the reason why. We learn about the criminal stuff often times after it actually happened. So there’s no way to know in real time. You can know 80-90 percent of the time, but it’s impossible to know 100 percent.”
He added that “regulators are still a couple of years behind,” and many countries still haven’t implemented strong AML laws to combat this kind of activity yet.
Fighting the Problem
It isn’t all bad news, however. The report shows that, while criminal Bitcoin payments run rampant on exchanges with lax regulation, exchanges that do have anti-AML measures in place saw exponentially less criminal activity. There were 36 times fewer payments received on these exchanges, and 18 times fewer payments sent, according to the report’s data.
If anti-AML regulations are enforced globally, CipherTrace predicts a significant reduction in criminal activity over the next two years through reduced opportunities for money laundering.
As we’ve mentioned before, regulators at the state and federal level are also becoming much more involved in the policing of cryptocurrencies, shutting down bad actors wherever they can find them. Again, this is reactive, but paired with stronger AML regulations could help reduce the overall rate of crypto-related crime.
Operation CryptoSweep is catching fraud in the U.S. The CFTC was just legally granted jurisdiction to persecute cryptocurrency fraud in the U.S. when a court ruled that virtual assets were commodities. Indicators exist that security is a concern for those involved in the crypto space and that there are companies who have heard those concerns and are moving toward a more secure, more transparent model.
This progress does have to be balanced against the fact that bad actors, especially in the crypto realm, are constantly adapting their methods of attack. New and more sophisticated methods of fraud and hacking are being used to combat increased security measures, and staying on top of them will be as important to the advancement of virtual currencies as anything else.