Regulators around the world are calling for cryptocurrencies to be brought within the remit of financial regulation. To date, the focus has largely been on Bitcoin, which was the predominant cryptocurrency traded on some of the largest dark web markets. However, in light of the call for better oversight, the value of Bitcoin plummeted and evidence suggests that users are moving towards alternatives that afford greater anonymity.

The move towards alternative cryptocurrencies

In our previous blog on the proposed regulation of cryptocurrencies, we discussed how law enforcement agencies have increasingly been able to track Bitcoin payments to specific illegal transactions and thereafter to the individuals behind them. The publicity surrounding these success stories has sounded a warning shot to those who use Bitcoin to facilitate criminal conduct and Rob Wainwright, Executive Director of Europol, suggests that as a result 2018 will see “a progressive shift” towards alternative cryptocurrencies presenting further challenges for law enforcement agencies operating within this area.

A recent high profile example of this phenomenon was the WannaCry ransomware attack that targeted computers running the Microsoft Windows operating system. The ransomware operated by encrypting information on an infected computer and demanding payment in return for decryption of the files. The National Audit Office calculated that the attack led to disruption in at least 34% of NHS Trusts. Whilst no ransom money was ultimately paid by the NHS the cost to the public arising from cancelled appointments and the diversion of emergency services was significant.

Interestingly, although the ransom payments were demanded to be made to specific Bitcoin wallets, these were quickly emptied and the Bitcoins exchanged into Monero through anonymous exchange sites. Monero is an alternative cryptocurrency marketed as “a secure, private, and untraceable”. It uses a multiplicity of devices to obfuscate the origin, amount and destination of transactions. The result is that it is virtually impossible for law enforcement agents to trace Monero transactions to a particular end user.

Looking forward

As individuals turn to ever more complex cryptocurrencies to hide assets and launder the proceeds of crime, a key question will be how governments can guarantee the effective regulation of cryptocurrencies worldwide. This question has been brought into sharp focus in light of the proposed amendments to the EU Anti-Money Laundering Directive.

One thing that seems clear is that law enforcement agencies will require greater flexibility and increased resources to respond effectively to the dynamic nature of crypto crimes. For the time being, those seeking to conceal financial transactions through the use of ever more sophisticated technology appear to be one step ahead.