The code to uncovering cryptocurrency crime remains tricky – Daily Maverick

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The global cybercrime industry represented the world’s third-largest economy with a GDP of $9.5-trillion by April 2024, according to Bloomberg.
“Like cryptocurrencies, the dark web is not inherently criminogenic,” said Dr Eveshnie Reddy, a senior lecturer in the University of South Africa’s Department of Criminology and Security Science.
Reddy was recently conferred with a doctorate of philosophy by the Law Faculty at the University of the Western Cape, after she published “An enforcement framework for cryptocurrency crime: A South African perspective”, consisting of four published journal articles and one book chapter.
In her research she argued that current laws such as the Cybercrimes Act and Financial Intelligence Centre Act offer partial solutions but lack clear provisions for cryptocurrency-specific crimes. The legal definitions of “money laundering” and “cyber fraud” must also be reevaluated to include crypto assets.
Reddy says interdisciplinary research is essential in this aspect of financial technology: “I needed to delve into computer science a little bit to understand how encryption technology works, how the dark web works, how criminals actually go into the dark web, and what types of crimes are actually committed. And it’s very nuanced.”
Reddy is also part of the African Fintech Law and Regulation Network coordinated by her PhD supervisor, Professor Vivienne Lawack.
The dark web, she said, refers to any part of the internet that is not indexed by regular search engines, and which requires specific software to access. This software typically hides users’ internet protocol (IP) addresses, which means dark web users are able to access the internet with complete anonymity, at least in theory.
“It’s considered a safe haven by many for private communication. So, it doesn’t necessarily mean there’s bad things happening there. But we’ve seen, of course, over the years, the emergence of illicit services and goods being sold on the dark web, where the payment of choice is cryptocurrencies,” Reddy explained.
About 12 years ago, on 27 September 2013, FBI special agent Christopher Tarbell filed a criminal complaint against a man named Ross William Ulbricht, charging him with narcotics trafficking conspiracy, computer hacking conspiracy and money laundering conspiracy.
Between early 2011 and mid-2013, Ulbricht was the mastermind behind an extensive and highly lucrative criminal enterprise that mobilised thousands of drug dealers and potentially hundreds of thousands of buyers – and it was all done online, on a dark web site named Silk Road. At a glance, the site looked like a typical e-commerce website, but its catalogue sported drugs such as heroin, cocaine and LSD.
“The site has sought to make conducting illegal transactions on the internet as easy and frictionless as shopping online at mainstream e-commerce websites,” said the complaint document.
Transactions on Silk Road were made using Bitcoin, and the document estimates that more than 600,000 Bitcoins were traded on the site throughout its lifetime, totalling $1-billion in sales.
Silk Road’s operation hinged on cryptocurrency as its medium of exchange. Without the anonymity afforded to Silk Road users by cryptocurrency, an operation of its size would have been infeasible.
Silk Road was an outlier, in that it sold physical goods. Typically, dark web cryptocurrency transactions are used to trade digital products and services.
Today, investigating cybercrime and cryptocurrency crime still presents a challenge for law enforcement around the world.
“For things like stolen credit card information, child pornography, those kinds of things, crypto is ideal, and the dark web is ideal,” Reddy told Daily Maverick.
According to Reddy, certain internationally used methods of investigating cryptocurrency crime are permissible under the 2020 Cybercrimes Act, although a lack of understanding of the act’s provisions and a shortage of skills within the South African Police Service has slowed their adoption in South Africa.
Read more: Chasing shadows — preparing for the 21st-century challenges of cryptocurrency and crime
The 2020 Cybercrimes Act officially criminalised cybercrimes, including unlawful access (hacking) in South Africa. This means that some traditional investigative methods used by police can be used in a virtual context.
The first of these methods, which technically constitutes a kind of remote search-and-seizure, may allow investigators to monitor internet activity. They could, for instance, find out which IP addresses are visiting specific criminal websites in order to identify perpetrators of online crime.
The second method could constitute online undercover operations, which the FBI used to uncover Ulbricht’s involvement in Silk Road.
“Of course, there need to be privacy safeguards in place… to ensure that the constitutional right to privacy is upheld,” Reddy said.
Nevertheless, even with these methods, policing online crime remains difficult due to its anonymity and decentralised nature, according to Reddy. Unlike traditional forms of crime, cybercrime facilitated by cryptocurrency – such as the distribution of child pornography or identity theft – and cryptocurrency crimes like money laundering and fraud, are not restricted to geographical locations because they take place online.
This gives rise to the need for police forces from different jurisdictions to work together in their investigations, a process called foreign mutual legal assistance, according to Reddy.
In recent years, there have been incremental regulatory steps towards tackling the role of cryptocurrency in online crime, said Reddy.
“Crypto assets have been declared as a financial product under the Financial Advisory and Intermediary Services (Fais) Act, and under Fais, the definition of a financial product includes any money-making instrument. So I think that helps a lot when it comes to money laundering.”
By July 2024 the Financial Sector Conduct Authority had ramped up its focus on the cryptocurrency sector, launching 30 investigations into unauthorised crypto-related financial services.
Read more: How to make sure your crypto asset service provider is legit
“Secondly, crypto exchanges will be listed under Schedule 1 of the Financial Intelligence Centre Act,” she said. This means that the exchange of cryptocurrency will be subject to sterner regulation by the South African government.DM
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