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Fraud and money-laundering
What are the potential risks of virtual currencies in terms of fraud? How would these be addressed in your jurisdiction? Have any specific instances emerged in which virtual currencies have been used for money-laundering or other fraudulent purposes?
The anonymous nature of virtual currencies is criminals’ favoured method for cyber and traditional crime. The most common uses are:
- demanding virtual currencies through ransoms and blackmailing; and
- stealing virtual currency through hacking attacks.
Other common frauds linked to virtual currencies include fraudulent ICOs that raise funds with false promises to develop projects with no actual intention to deliver them.
To address these issues, the Anti-money Laundering Authority protects the gateways between virtual and fiat currencies by demanding that all exchanges maintain records and report on suspicious transactions.
In addition, local police and other law enforcement bodies use the most advanced technology to monitor and track transactions relating to the illegal use of virtual currencies.
Recent examples of fraud involving virtual currencies in Israel include the following:
- In late 2017 Israeli entrepreneurs raised millions of US dollars for a project called Coindash. However, a hacker breached the project's website during the ICO and switched the wallet’s bitcoin address. As result, within a short period, bitcoins worth millions of US dollars were transferred to the hacker and were subsequently irretrievable.
- In early 2017 an extensive international investigation led to the arrest of a 19-year-old hacker from Israel who was accused of making over 2,000 threatening phone calls, anonymously alerting companies and authorities to terrorist attacks. The investigation revealed that the young hacker was using highly-sophisticated tools to cover his tracks and had paid for proxy servers with bitcoin, which made the investigation far more difficult.
With regards to the use of virtual currencies for money laundering, it is not as practical as commonly thought. Virtual currencies keep their records on a public ledger, meaning that all transactions are recorded and remain accessible indefinitely. As a result, moving large funds via blockchain is transparent and can sometimes even be traced to the person behind it. Therefore, there are no known cases of large-scale money laundering using virtual currencies, other than transactions which are illegal in their nature, as in the infamous Silk Road case.
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