White Collar Crime in the Blockchain Era – Curbing Its Growth

Crime, News | August 21, 2018 By:

Blockchain isn’t going anywhere. It’s in the media daily, and is at the forefront of digital disruption and innovation discussions among leading businesses. We’ve seen blockchain technology applications in banking, currencies, supply chain, contracts and dozens of other areas. The volume of money flowing into cryptocurrencies is continuing to expand – fast.

As this technology becomes more prevalent in business, anti-fraud professionals will need to ask some important questions: How can fraudsters exploit blockchain when we use it in business transactions, contracts, money exchanges or data interchanges? If white collar crime is an issue in 2018, how bad could it get ten years down the road, with even greater advancements in the crypto space?

How Big is the Problem?

Law enforcement agencies believe that plenty of illegal trade is carried out using cryptocurrencies as the funding mechanism. Illegal activity accounts for about 20% of the transactions of five major cryptocurrencies—bitcoin, Monero, Zcash, ether and litecoin—or about $600 million each day.

This is where the importance of monitoring the usage of cryptocurrencies for dark net purchases comes into play. The continued globalization and decentralized marketplaces are opening up a whole new web of ways for white collar criminals to reach new victims.

White Collar Crime- What Is It?

White collar crime goes back thousands of years. We like to call it “non-violent” crime. It’s a kind of corporate crime often performed by educated people in positions of trust.

Today, the biggest threats in white-collar crypto crimes center around Ponzi schemes and ICO fraud. In ten years’ time, we could run into issues like trade-based money laundering using cryptocurrency as payment.

How Criminals Cover Their Tracks

While collar crime is becoming more complex and difficult to detect, as these educated people have become skilled in concealing their illegal actions. The result is that there will be less clarity between the perpetrator and the victim (or whether there is a victim at all).

Every bitcoin transaction is currently recorded on an encrypted public ledger, known as the blockchain, preventing someone from spending the same bitcoin twice or counterfeiting the currency. And because the blockchain is stored on a decentralized network of computers, the records of these transactions would be theoretically impossible for hackers to corrupt. However, removing banks from the equation poses a problem for law enforcement, which relies on financial institutions to provide records needed to secure convictions. This is why the OTC method of trading cryptocurrencies needs to be monitored.

Getting Ahead Of the Curve

Getting ahead of the curve and providing a solution that couples security with convenience may be the only way to truly change the privacy and security issues we are currently faced with. Regulation needs to start with the exchanges, as they are the conduit between the fiat and crypto worlds. As the larger exchanges are centralized, such regulation will be more effective. Regulation needs to prioritize reporting transactions above a certain value and control which tokens the regulated exchanges can trade. A licensing model similar to Japan’s Virtual Currency Exchange License can be a great help in codifying a range of regulations. On a global level, coordination of KYC and AML protocols between different jurisdictions will be a major step forward. Analytics companies can advise on these protocols.

Finally, better coordination between authorities that harvest big data such as regulators, law enforcement agencies, banks and large online retailers will go a long way in resolving current difficulties.

Law enforcement will continue to leverage technology, machine learning and AI to identify patterns and address issues.  Developments in technology, such as quantum, may bring into our view some tools we never knew had existed, and knowledge (from analytics) with the capacity to act are essential tools in this ever-changing world.

The fight against fraud is an ongoing battle

As long as there has been money, people have found ways to steal it. And as sure as there will be money ten years from now, white-collar criminals will be looking for new ways.

Blockchain has been called the most important invention since the internet itself. It has the potential to reform nearly every industry. While it’s exciting to see the rapidly growing adoption of cryptocurrencies across so many markets, cryptocurrencies will only be sustainable and helpful if the marketplace is safe.

This is still up to us.