David Grau , Head of Business and Customer Engagement, BLINK
November 08, 2023

Keeping up With Financial Investigations in the Crypto Age

The strategies of criminals and terrorists are constantly evolving, employing new techniques and technologies to commit crimes and stay one step ahead of law enforcement and security organizations. The blockchain has presented a valuable opportunity for dark actors to make countless types of anonymous cryptocurrency transactions, ranging from drug trafficking to money laundering to terror funding. As dark alleys are being replaced by dark marketplaces, financial investigators are finding that they need to trade in their traditional methodologies for blockchain analytics if they are going to keep pace with criminals.   

Our new eBook deep dives into the challenges cryptocurrency crime poses for financial investigations, which tools and techniques criminals use to avoid detection, and what to look for in a blockchain analytics solution. Read on to get a taste of what you will learn. 

How does cryptocurrency disrupt financial investigations?

Criminals use cryptocurrency for many reasons: it is anonymous, easy, quick, requires no previous relationship between parties, and can facilitate seamless international trades. Each of these reasons creates both a challenge for law enforcement and an opportunity for dark actors. 

Traditional financial investigation methodologies, such as “following the money trail” are valuable, yet may, in some cases, lead to a dead-end in the anonymous, borderless, and tech-savvy world of cryptocurrency. Once an illicit activity is identified, we can break down the challenges to cryptocurrency financial investigations at every step to identify 3 main hurdles to revealing and catching crypto criminals: 

  1. Tracking activity on the blockchain and following the illicit money trail to an exchange
  2. Cooperation with global, peer-to-peer or unregulated exchanges
  3. Uncovering the true identities behind exchange transactions 

These challenges are amplified by popular tools and techniques used by criminals to commit blockchain crimes and remain anonymous.

Key challenges in crypt investigations involving crypto crime and cryptocurrency crime.

How do criminals enhance their anonymity on the blockchain?

While there are public ledgers of transactions that occur on the blockchain, the identities behind transactions are anonymous. In theory, law enforcement could follow a trail of transactions to an exchange that complies with “know your customer” (KYC) regulations and identify their criminal. However, illicit actors use several technologies to augment their anonymity on the blockchain and prevent officials from tracing them. 

Here are some popular methods by which criminals avoid detection: 

  • Mixers & shapeshifters: Mixers pool and scramble crypto assets from multiple addresses, sending them at random time intervals to destination addresses. Shapeshifters are mixers that go one step further by converting the assets into a different cryptocurrency. 
  • Stealth addresses: Stealth addresses are random one-time addresses, created automatically by the sender’s wallet software for each of his outgoing transactions. Although the recipient party may publish just one address, that address never appears on the blockchain, as it is replaced with stealth addresses for each transaction. 
  • Secured browsing: Encrypted communication and browsing ensure that content will not be revealed. On top of encrypted wallet applications, VPN and Tor provide criminals with means of hiding illicit activities. 
  • Privacy enhanced wallets: Privacy enhanced wallets, like Wasabi, are services that have built-in mixers and encryption measures to hide the source and origins of transactions. 
  • Privacy Coins: Privacy coins, such as Monero, are cryptocurrencies with privacy-enhancing features built into their protocols. They have embedded many of the techniques mentioned above. 

These tools are all useful in enhancing anonymity during transactions before cryptocurrency goes through an exchange. But criminals have also developed several ways of circumventing law enforcement once they get to an exchange, such as using fake IDs or “fraud-as-a-service,” also known as “peer-to-peer trading.” 

These, combined with the challenges that law enforcement often faces when attempting to cooperate with third parties, such as unfriendly third parties or confidential and time-sensitive investigations, make it very challenging to complete crypto financial investigations. 

How blockchain analytics can get your cryptocurrency financial investigation back on track

While new technologies and crafty techniques used by criminals might be daunting to investigators, the right blockchain analytics tool can overcome anonymity-enhancing services and reveal the true identities of illicit transaction makers. To find out exactly what you should look for in a blockchain analytics tool, download our eBook.

Ready to learn how our blockchain solutions can help your investigations? Schedule a meeting with an expert.

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David Grau , Head of Business and Customer Engagement, BLINK

David is Head of Business & Customer Engagement for Blink, Cognyte’s blockchain analytics solution. David has extensive experience in Sales, Marketing and Business Development in the homeland security, cyber, defense and intelligence domains. David holds a BA in Economics and an MBA from Tel Aviv University, and is currently pursuing a Masters degree in History.
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