Crypto-crimewave forces police online to pursue ill-gotten assets

Scams relating to digital ‘coins’ are growing – but data reveals authorities are making record seizures of assets too

In July 2021, specialist police officers in Manchester swooped on an international cryptocurrency scam, seizing USB sticks and an online safe containing £16m worth of digital coins, mostly ethereum.

A month earlier, Leicestershire police had confiscated 10 types of cryptocurrency after raiding the home of a drug dealer who used digital assets to buy and sell class A drugs.

Both operations pale in comparison to the Metropolitan police’s record crypto haul of the same year, worth £180m. But all three, and many more besides, are part of a spreading crypto-crimewave laid bare today by a series of freedom of information requests.

The Observer requested data from the 45 regional police services in the UK asking for a breakdown of cryptocurrency seizures since 2017. The information sent back by the 27 forces that responded reveals a big shift: there has been a significant increase in the number of raids, and a proliferation in the types of digital coin criminals are using to invest the proceeds of their activities.

More than half of the forces that responded seized crypto-assets during 2021, confiscating or restricting access to 22 different types of digital currency. This was a significant increase on 2020, when four types of crypto were seized, by eight police services. The figure was even lower in 2019, when only two types of digital currency were seized.

While the best-known digital currencies, such as bitcoin and ethereum, featured more than any others, the figures reveal the increasing popularity among convicted and suspected criminals of much less well known rivals.

“Bitcoin is still key: it’s digital gold,” says Gurvais Grigg, who spent 23 years with the FBI and now works as chief technology officer for the data consultancy Chainalysis, which helps private companies and law enforcement bodies trace the movement of cryptocurrencies. “You’ve seen this emergence of ethereum, ‘stablecoins’ [cryptocurrencies pinned to a real-world asset] and a much more diverse market. As a result you’re going to find more of those currencies in the pockets of criminals, because they’re taking them from people.”

In the Leicestershire case, police emerged with assets including Enjin Coin, Polkadot, Neo and even Chiliz, the crypto-tokens sold to football fans to enable them to access perks and vote on decisions at their clubs.

In Wales, the South Wales Regional Organised Crime Unit seized eight crypto-assets, including one called Cake, while its counterpart in the south-west confiscated seven, including the Luxury Coin.

“It’s an emerging field that’s come at us like a tidal wave, and policing has to adapt with the times,” says Phil Ariss, who coordinates the national police response to crypto-crime.

“It’s a big learning curve, but we’re doing well.”

He says 300 police officers have been trained in crypto, with hundreds more due to receive instruction. But the scope of the challenge is even greater than outlined by the Observer’s freedom of information requests.

While some services haven’t made seizures themselves, “most are involved in investigations”, he says, with officers working on cases featuring between 35 and 40 types of coin.

“It’s not just investments and theft, in some extreme cases it’s terrorism financing. It can be purchasing of child abuse images, money laundering. We’re seeing a huge span of cases across law enforcement,” he says.

Most police services don’t disclose the amount of cryptocurrency involved, for fear that other bad actors, armed with such granular detail, could spot when seizures had taken place. Leicestershire police said it might give them “forewarning” of an investigation that could affect them, allowing them to take steps to hide ill-gotten gains.

However, Dyfed-Powys police, which patrols a mostly rural area in which Llanelli is the largest town, told the Observer it had taken possession of 82 bitcoins in 2021, with a value of £2.5m at the most recent price.

When the police do confiscate such digital assets, they are not well equipped to store them themselves. Instead, Avon and Somerset police explains, they contract that job out, storing the bounty “in a secure wallet with a third party provider”.

They decline to name the companies involved, citing security reasons; there is a danger of workers at crypto-exchanges being targeted. In 2017, Pavel Lerner, a UK-based exchange employee, was abducted by gun-toting men wearing balaclavas in Ukraine. He was only released after a ransom was paid. Every police service that responded to the FoI requests referred to this case as a reason why they would not disclose holders of seized cryptocurrencies.

“The above incident is not the only one of its kind,” Avon and Somerset police says. “As such, providing information to the wider public about the volume of assets stored and where they are stored increases the risk of cyber-attacks, insider threat and other hostile actions by those who may wish to infiltrate either the supplier or law enforcement.”

In theory, the growing attraction of cryptocurrency to criminals is obvious. Large amounts of money can be sent across borders quickly, into jurisdictions that do not necessarily cooperate with UK law enforcement.

According to Grigg, though, criminals should not get overconfident. Transactions that take place on the blockchain are, by their nature, logged. That means, with the right time and resources, they can be traced, and perpetrators apprehended, long after crimes have been committed.

On the dark web, mixing services are available that allow criminals to launder their crypto, blending it with other types of assets to scatter the paper trail and throw investigators off their tail.

But Grigg says that determined, well resourced investigators can still get there in the end. “Tracing tools have got better and data availability is better,” he says.

The growing number of seizures in the UK is not just a reflection of more crime, he says, but of the growing ability of police officers to stop it. In addition, he points out, the legitimate crypto market has grown faster than the volume of crime-related transactions has. Illicit crypto addresses received $14bn during 2021, according to Chainalysis – a record sum, but an all-time low in terms of share of total volume, at just 0.15%.

Yet as long as the crypto world is expanding rapidly, the challenge for law enforcement will grow alongside it.

A separate freedom of information disclosure, shared with the Observer, reveals a significant increase in reports of crypto-related fraud last year. There were 9,607 such reports made to the national reporting hotline Action Fraud last year, according to the City of London police, up from 5,581 the year before and 3,558 in 2019. Victims, who were disproportionately likely to be under 35 and male, flagged financial losses of more than £200m.

David Gerard, author of Attack of the 50 Foot Blockchain, says more crypto equals more crime. “More people are using the stuff,” he says. “There are minor coins, known as ‘shitcoins’, for everything these days.

“There will be a lot more scams because more people are promoting it. Times are tough, people are worried, so they’re prey to false hope and get-rich-quick schemes.”

But Ariss points out that the greater the public’s interest in crypto, the greater also the awareness and understanding among the police officers trying to prevent ordinary people from becoming victims.

“The [expansion] of crypto in the consciousness of the wider public also affects police officers. You only have to go on the tube and you see ads; crypto companies are sponsoring sports teams. On Crypto.com you’ve got Matt Damon endorsing it.

“There’s an awareness that permeates, and in some ways the challenge [of training officers] is easier now than it ever has been.”

Ariss says British police are keeping pace, so far.

“We’re in a good place compared to some partners in international law enforcement.

“The wheels of justice turn slowly so some of those good news stories haven’t come out yet, but time will show we’re doing a very good job.”

Content retrieved from: https://www.theguardian.com/technology/2022/apr/30/crypto-crimewave-forces-police-online-to-pursue-ill-gotten-assets.