Losses from crypto theft and fraud hit $4.4bn in 2019, but Q3 sees decline

CipherTrace quarterly report shows overall rise to $4.4bn in losses from crypto-crime


Theft and fraud of crypto currencies hit $4.4 billion (£3.4bn) this year, up from $1.7 billion in 2018, although the third quarter of this year saw the lowest amount of quarterly crypto crimes in two years, according to a quarterly report by CipherTrace.

The biggest driver of the drop in crime was the imminent imposition of new rules that will require global crypto exchanges to share customer data when passing funds from one to another, CipherTrace’s quarterly cryptocurrency anti-money laundering report said.

The Financial Action Task Force (FATF), an intergovernmental organisation dedicated to combating money laundering and financing for terriorism, issued its proposal in June and gave countries 12 months to adopt its guidelines that will bring the requirements for transfers of funds for virtual providers in line with those that have been in place for banks and other financial institutions for some time.

“The third quarter saw growing awareness of perhaps the biggest clampdown on virtual asset transactions to impact crypto exchanges as well as banks and other financial institutions,” CipherTrace said.

“After months to absorb its implications, these businesses are coming to grips with the fact that in just seven months they will need to comply with the so-called FATF funds Travel Rule … this rule requires virtual asset service providers (VASPs) to securely transmit (and store) sender and receiver information whenever cryptocurrency moves,” it said.

As newer digital currencies have entered the market and a growing number of users employ cryptocoins for everyday transactions, the size of the market has grown exponentially and, with it, so has the scale of crypto-related crime.

CoinMarketCap.com estimates total market cap for the cryptocurrency market is around $280 billion, up from $139 billion last year and up from $13 billion in November 2016, prior to BitCon’s stratospheric run up to $20,000.

This would mean that crypto-related crimes this year are equal to roughly 1.6 per cent of the total market, compared with 1.2 per cent in 2018 and just 0.2 per cent in 2017, based on CipherTrace’s data.

A separate report from ResearchandMarkets.com estimates the value of the global crypto currency market will rise above $850 billion by 2024.

CipherTrace said its research showed that over 60 per cent of the 120 crypto exchanges had weak or very porous know-your-customer (KYC) practices, meaning these platforms made it easier for users to launder money.

CipherTrace rated platforms as having “weak” security if they allowed researchers to withdraw at least 0.25 BitCoin daily with “very little, or no, KYC”, while those rated “porous” required some sort of identification verification process. CipherTrace classed those exchanges as having “strong” security if they required users to complete several steps before allowing deposits or withdrawals, including ID and address verification.

CipherTrace research further found that 63 per cent of exchanges that trade so-called privacy coins – those that afford their users the option to hide nearly all the details of their transactions – have weak or porous KYC.

“This suggests privacy coins will find it harder to survive in a post FATF Travel Rule world if exchanges do not develop the proper KYC procedures necessary to mitigate the anti-money laundering/counter-terrorism funding compliance risks that come with their anonymity-enhancing features,” the report stated.

FURTHER READING: Chinese president labels cryptocurrencies ‘financial fraud’

FURTHER READING: US commodities regulator received over $1.3 billion in penalties from crypto and other firms last year

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