In pandemic fraud, cyber fusillades, more criminals choosing crypto to buy virtual

By Brian Monroe
bmonroe@acfcs.org
May 15, 2020

The U.S. Treasury is putting the virtual value sector on notice that as the COVID-19 pandemic fuels new waves of fraud and hacks, criminals are increasingly using crypto coins and related exchanges to purchase malware packages and reap the profits of phishing, ransomware and other cyberattacks.

These illicit actors are also attempting to make it harder for investigators to uncover and cripple their coronavirus-themed scams and schemes by engaging “anonymity-enhanced cryptocurrencies,” also called privacy coins, and going through “tumblers,” tactics that take advantage of crypto exchanges with weak anti-money laundering (AML) programs.

Those are just some of the criminal trends, compliance vulnerabilities and regulatory focal points highlighted by Ken Blanco, director of the Financial Crimes Enforcement Network (FinCEN), in a virtual Consensus Blockchain Conference this week.

“FinCEN has observed that cybercriminals predominantly launder their proceeds and purchase the tools to conduct their malicious activities via virtual currency,” Blanco said 

“Your institutions have the opportunity, and obligation, to help identify these illicit criminal networks in your suspicious activity reporting to FinCEN, so that FinCEN can aggregate and analyze this information to identify red flags, permitting industry to spot risks.”

To read Blanco’s full statement, click here.

The missive puts more pressure on crypto exchanges – and other operations that create, sell or move virtual funds – to ensure they are not inadvertently acting as a gateway for organized criminals and hacking collectives to monetize their more aggressive digital fusillades during the pandemic.

The crypto exchange sector is still wrestling with more formalized compliance duties coming domestically and internationally, most recently in June when the Paris-based Financial Action Task Force (FATF) updated a key recommendation to include the “Travel Rule,” a requirement that critical customer details “travel” with the transaction through the various interlinked parties, with a deadline date of June 2020.

But while the rule has been a longtime staple for bank transactions, it has become a crypto industry flashpoint, with a bevy of crypto companies, associations and thought leaders offering potential solutions in dense and didactic essays, whitepapers and analyses.  

Financial crime in a time of coronavirus

Beyond just crypto exchanges and their compliance challenges, Blanco’s comments also tacitly increase the scrutiny that brick-and-mortar banks – the nexus between the realm of crypto coin and fiat value – must engage in related to their crypto exchange customers.

In essence, similar to other historical relationships with operations like money services businesses (MSBs), banks must act as a de facto regulator to their crypto clients, lest their own federal regulators uncover these relationships first and…