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Losses from cryptocurrency crime doubled in 2019

By Hugh Wilson

Ponzi schemes and other insider frauds net crypto criminals billions and put banks in the spotlight

Total losses from cryptocurrency crime leapt to $4.52bn (£3.5bn, €4.1bn) in 2019 despite a fall in thefts from hacking, according to research from blockchain forensics expert CipherTrace.

The company’s latest Cryptocurrency Anti-Money Laundering report found a shift in threats from thefts and hacks to fraud and misappropriation of funds, often carried out by “malicious insiders”.

It found that while losses from hacking thefts fell by 66 per cent to $370.7 million, losses from “Ponzi schemes, exit scams, and other forms of cryptocurrency financial fraud” jumped to $4.1bn. The combined figures represent a 160 per cent increase over 2018.

The study highlights a fraud that “spirited away” $200 million from one of Canada’s largest cryptocurrency exchanges. Another saw fraudsters scamming a staggering $3bn from retail and institutional crypto investors in Asia in an alleged Ponzi scheme involving an illicit crypto wallet and exchange service.

The report also highlights worrying connections between illicit crypto service providers and major banks. It states: “Another key trend is the increasingly intertwined nature of banking and virtual assets.”

In Q4 2019, CipherTrace released results of a study that found almost all the top 10 US retail banks have illicit cryptocurrency Money Services Businesses (MSBs) – including crypto exchanges – transmitting funds on their payment networks.

“These clandestine operations create Anti-Money Laundering (AML) compliance risks because criminals must find ways to launder ill-gotten crypto profits,” the report said.

CipherTrace added that a lack of visibility over crypto assets in customer accounts and payment networks could also open US banks in particular to possible enforcement actions. Strict punishments can be handed out to institutions that fail to abide by sanctions imposed on nations such as Iran and North Korea.

FURTHER READING: Three arrested in $722m crypto mining Ponzi scheme

FURTHER READING: What is a Ponzi scheme?

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