Crypto Fraud and Theft Trends Continue Unabated

At a time when public interest in cryptocurrency is greater than ever – with total crypto transaction volume growing to a high of $15.8 trillion in 2021, according to Chainanalysis – it is important to note that cryptocurrency-based crime also reached an all-time high in 2021, with illicit addresses receiving $14 billion. 

Within the past week, a series of events demonstrated the continuing and substantial risk of losses to  crypto-related fraud and theft schemes:

  • On March 24 and 25, hundreds of officers with the Latvian State Police and the Lithuanian Police, including special intervention teams, raided a total of three call centers belonging to a single organized crime group that offered would-be investors fake investments in bitcoin, commodities, and foreign currencies.  The European police organization Europol stated that the call-center operation employed up to 200 fake “traders”, speaking English, Russian, Polish and Hindi to their intended victims.  Latvian and Lithuanian Police detained more than 100 individuals, and seized cash, bank accounts, and luxury vehicles as well as €95,000 in cryptocurrencies.
  • On March 28, the United Kingdom law firm Pinsent Masons reported that in 2021 there were 9,458 cases of complaints about alleged cryptocurrency investment fraud in the United Kingdom – a 64 percent increase over 2020 (5,758).  Common crypto-related schemes reported included bogus investments and social media posts that promoted fake websites and apps through which individuals allegedly could invest in digital currencies.
  • On March 29, Blockchain project Ronin stated that hackers stole cryptocurrency now worth almost $615 million from its systems.  It reported that on March 23, unidentified hackers used stolen private keys to steal approximately 173,600 ether tokens and 25.5 million USD Coin tokens.  It also noted that it was working with Chainalysis to trace the stolen funds, most of which were then still in the hacker’s digital wallet.  The Ronin loss represents the second-largest crypto theft ever reported.

These events provide strong indications that the crypto sector still has far to go in combating online fraud and theft schemes.  It is noteworthy that the Latvian and Lithuanian police raids involved substantial international cooperation and coordination.  Europol worked with national investigators from both countries to establish a joint strategy and to organize an intensive exchange of evidence, and the European prosecutors group Eurojust set up a joint investigation team (JIT) into the case within one week.  In contrast, there seems to be little to no collective action within the crypto sector to work with authorities to combat crypto fraud and theft, or to urge crypto industry firms to maintain robust cybersecurity to protect buyers’ and investors’ funds.

In its latest Crypto Crime Report, Chainalysis acknowledged that “$14 billion worth of illicit activity represents a significant problem”, but also asserted that “crime is becoming a smaller and smaller part of the cryptocurrency ecosystem” because the $14 billion figure represented only a 79 percent increase over 2020.  There is no guarantee, however, that that trend will continue.  State actors such as North Korea and organized criminal groups are likely to look at the $15.8 trillion in crypto transactions and redouble their efforts to swindle or steal crypto buyers’ funds however and wherever they can.  Legitimate crypto firms need to anticipate those actions and to build effective public-private cooperative measures to ward off even greater crypto buyer and investor losses.

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