Bitcoin, Cryptocurrency, and Organized Crime: A Potential Catastrophe in the 21st Century

On Oct. 31, 2008, Satoshi Nakamoto introduced bitcoin with the whitepaper, Bitcoin: A Peer-to-Peer Electronic Cash System. Then, a little more than three months later, the blockchain was launched when the first block, called the genesis block, was mined, followed by the first test transaction  about one week later. The world has never been the same. 

Bitcoin: The Cryptocurrency That Changed the World 

From these humble origins, Bitcoin exploded in value, impact, and accessibility. Chetan Chawla, assistant professor of entrepreneurship at North Central College in Naperville, Illinois, who studies cryptocurrencies and blockchain, acknowledges this meteoric rise in the article The History of Bitcoin: A look at Bitcoin’s beginnings and price history, by Coryanne Hicks:

“Once Bitcoin became available on exchanges in 2010, it became easier to buy, sell, trade and store. Thanks to these exchanges, bitcoin could also be priced against the U.S. dollar. From a low of a few cents in 2010 to the all-time high of late 2017 when each bitcoin touched U.S. $20,000, Bitcoin has come a long way and continues to dominate the cryptocurrency markets.”

Cryptocurrency: A Boon to Organized Crime? 

Of course, where there’s opportunity for legal activity, there is always opportunity for illegal transactions. In the report LA CRYPTO NOSTRA: HOW ORGANIZED CRIME THRIVES IN THE ERA OF CRYPTOCURRENCY, Chelsea Pieroni writes:”. . . cryptocurrency’s nebulous nature makes it inherently vulnerable to a slew of hacks, cyberattacks, and run-of-the-mill theft. Moreover, its indeterminate qualities make cryptocurrency incredibly difficult for federal law to wrangle. But, perhaps most chillingly, the rise of cryptocurrency has given organized crime a new look, swapping society’s Kuklinskis and Capones for pseudonymous sleuths and computer-clad criminals, and underground operations for ‘dark web’  schemes that transcend international borders at the click of a button.”

The report wraps up with the following ominous conclusion: 

“When cryptocurrency gained traction, new crimes came along with it. But the spark of cryptocurrency is also responsible for stoking the once-dwindling flame of mob and syndicate crimes. Gone may be the days of Gotti and Hollywood-worthy heists—but mob syndicates, old and new, have shown no intention of leaving. Only time will tell what new and creative ways criminals around the world will leverage virtual currency to avoid the law.”

While Pieroni acknowledges the difficulty of infiltrating these emerging crime syndicates, she recommends a vigorous application of RICO statutes, stating “RICO, however, may be the best legal recourse to keep cryptocrimes at bay.” However, even this approach is problematic as pointed out by The First Amendment Encyclopedia, stating, “ The application and use of the [RICO] law has raised important First Amendment issues implicating the right to freedom of association.” Still, the growing depth and breadth of the cryptocurrency crime problem cannot be ignored.

Cryptocurrency: Anonymity as a Friend 

Part of what makes bitcoin susceptible to criminal exploitation is its anonymous and removed nature. The authors of Sex, drugs, and bitcoin:How much illegal activity is financed through cryptocurrencies? echo this sentiment: 

“Arguably, the ability to make digital payments revolutionized retail and wholesale trade. Online shopping substantially impacted the structure of retailing, consumption patterns, choice and hence welfare, marketing, competition, and ultimately supply and demand. Until cryptocurrencies, such impacts were largely limited to legal goods and services due to the traceability of digital payments. Cryptocurrencies have changed this, by combining the anonymity of cash with digitization, which enables efficient anonymous online and cross-border commerce. Cryptocurrencies therefore have the potential to cause an important structural shift in how the black market operates.”

And there is one particularly disturbing issue concerning the nefarious use of bitcoin: human trafficking. Human Trafficking Search, and organization that “strives to promote creative and innovative solutions to address human trafficking, trauma, poverty, and inequality,” reports

“Bitcoins are untraceable digital currency, which is appealing to human traffickers, drug pushers and arms dealers who operate in the illicit markets. The global illicit flow of goods, guns, people, and natural resources is estimated at approximately $650 billion and the large majority of the illicit economy is conducted online. Bitcoins allow traffickers to anonymously buy and sell women and girls for sex without the fear of legal repercussions.” 

Cryptocurrency and Latin American Gangs 

And because cryptocurrencies know no official boundaries, Latin American crime syndicates are also getting a piece of the action. As reported in a Rueter article, “The cryptocurrency is emerging as a new front in Latin America’s struggle against gangs battling for control of vast criminal markets for sex, drugs, guns and people, according to law enforcement authorities.” 

In particular there is a strong element of money laundering according to Ruerters: “‘There’s a transition to committing crimes in cyberspace, like acquiring cryptocurrencies to launder money … and the pandemic is accelerating it,’ said Santiago Nieto, head of the Mexican finance ministry’s financial intelligence unit (UIF).”

Cryptocurrency and Terrorism 

Terrorists are also aware of the possibilities of using cryptocurrencies to fund their operations and missions. In a recent blog post by The Rand corporation, Antonia Ward provides some concrete examples: 

“In some cases, terrorists have used the cryptocurrency to replace the traditional method of ‘hawala,’ in which terrorist organizations have used a physical and local broker to transfer money between locations. Moreover, in January 2017, Islamist militants allegedly used Bitcoin to finance operations. The Mujahideen Shura Council, a US-designated terrorist organization in the Gaza Strip, launched a Bitcoin funding campaign last year. ISIS has also used Bitcoin, posting an advertisement on the dark web with its Bitcoin address.”

Developed, industrialized countries are also at risk, including our neighbors from down under.. According to a publication from the online publication Finance Magnates, ”Australian authorities have expressed concern that e-commerce businesses and Bitcoin exchanges assist in facilitating criminal activities, as they lack transparency regarding transactions and encryption.” The authors of the publication cite a report by The Australian Criminal Intelligence Commission (ACIC) which states “major criminal organizations that are involved in money laundering are costing the country over $28.34 billion annually.” 

Cryptocurrency: Is there consensus? 

There is by no means a consensus about the impact or scope of cryptocurrency crimes. A 2018 report issued by The Hong Kong Financial Services and Treasury reached the following conclusion: 

” Between 2013 and 2017, there were 167 Bitcoin-related reports to the HKPF (Hong Kong Police Force). Most of the reports involved blackmail using ransomware (such as the recent “WannaCry” attack), and the figure is comparatively low compared with that in other jurisdictions. Investigations and intelligence do not suggest VCs (Virtual Currencies) were used or intended to be used in other prevalent predicate offences (e.g. drugs, dutiable goods smuggling) or TF (Terrorist Financing). The threat level is low.”

And, in the Chainalysis 2021 Crypto Crime Report, sponsored by Chainalysis, the authors point out that “In 2019, criminal activity represented 2.1% of all cryptocurrency transaction volume, or roughly $21.4 billion worth of transfers. In 2020, the criminal share of all cryptocurrency activity fell to just 0.34%, or $10.0 billion in transaction volume.

But if you look a little closer at the report, there is information that waters down the idea that crypto crimes are waning. The report also states, “One reason the percentage of criminal activity fell is because overall economic activity nearly tripled between 2019 and 2020.” So, the stark reality is that cryptocurrency crime seems to be alive and well, waiting patiently to gobble up the spoils of an expanding economy that is likely picking up steam as the grip of the COVID-19 pandemic abates. 

Moreover, there is a concept known as the iceberg theory that might further undermine the notion that cryptocurrency crime is a minimal phenomenon. The iceberg theory, or theory of omission, is a writing technique coined by American writer Ernest Hemingway. The iceberg theory posits that writers can intentionally focus on surface elements without explicitly describing or exploring implied or hidden themes. Hemingway conceptualized this phenomenon based on the structure of icebergs, the majority of which is found beneath the surface, hidden from the human eye. 

The same dynamic can be logically applied to cryptocurrency crime, which is that the vast majority of illegal activities are likely occurring without our knowledge, just below the scope of our collective vision. It will certainly never be the same. 

A New York Times article seems to corroborate this assumption, making the following assertion: “Even as certain kinds of crimes are declining, others are increasing — yet because so many occur online and have no geographic borders, local police departments face new challenges not only fighting them, but also keeping track of them. Politicians often promote crime declines without acknowledging the rise of new cybercrimes.” 

The article goes further, stating, “[M]any of the offenses are not even counted when major crimes around the nation are tallied. Among them: identity theft; sexual exploitation; ransomware attacks; fentanyl purchases over the dark web; human trafficking for sex or labor; revenge porn; credit card fraud; child exploitation; and gift or credit card schemes that gangs use to raise cash for their traditional operations or vendettas.”

The profound nature and unknown scope of these crimes present a formidable challenge for law enforcement and intelligence agencies. To mitigate these damages, we will need more than RICO statutes as tools of punishment. We will need a highly-coordinated, global effort that uses the latest technologies to identify, monitor, assess, and ultimately arrest and prosecute the criminal parties exploiting the anonymous nature of cryptocurrencies. 

As stated in an analysis by BAE Systems Applied Intelligence , “Collaboration will be key in these areas, both inter-organisational, within jurisdictions and internationally. In addition, awareness of new money laundering techniques, such as those involving cryptocurrency, will be key to staying ahead of the challenge of reducing the opportunities for threat groups to benefit from committing high-value cyber heists.” 

The global community is waiting and the United States needs to take the lead. If not, the world may change in ways we could only imagine in the darkest web of the alternate crypto-criminal universe. 



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