Digital assets – which include, but are not limited to, digital documents, audible content, motion pictures, and other relevant digital data – generally fall into three main categories of investigation. 

1) The use of cryptocurrency as a means of payment for or a manner facilitating criminal activity – this includes, for example, the surge of ransomware attacks in which payments made by victims are being made in cryptocurrency; 2) The second category is cryptocurrency and other digital assets as a means of concealing illicit financial activity, including to further money laundering, facilitate tax evasion, and evade sanctions through a variety of increasingly sophisticated techniques designed to make tracing of those funds more difficult; 3) crimes involving or undermining the digital asset ecosystem itself, and that include frauds and thefts of all kinds ranging from securities and commodities fraud to investor fraud, rug pulls or the theft of investor funds into projects involving cryptocurrency, Ponzi schemes, and romance scams, as well as the rise of decentralized finance, or DeFi, and the increased hacking exploitation of DeFi platforms, including by nation-states such as North Korea. 

So why are digital assets being used in these crimes? According to Eun Young Choi, who serves as Director of the National Cryptocurrency Enforcement Team at the US Department of Justice (DOJ), it’s because many of the features of these technologies by design make them attractive for the purposes of criminal exploitation. These include, for instance, the pseudonymity or anonymity behind transactions, where although a public blockchain might be able to tell you which two addresses conducted a certain transaction at a certain time, law enforcement has to rely on the records of intermediaries such as virtual asset service providers or cryptocurrency exchanges in order to identify the true identity of those behind the addresses conducting those transactions. 

“It also includes immutability and irreversibility of transactions in the blockchain. Because unlike in the traditional financial system for international wire transfers, for instance, once the money is sent, even if it’s detected to be related to fraud or criminal activity, it’s impossible to reverse those transactions. There’s also the crossborder nature of these transactions. We’re seeing a lot of cases in which the victim might be in the United States, the criminal might be in another country, an exchange is being used to make the transaction involving cryptocurrencies registered in a third country, although the records for that exchange might be located in a fourth country and the employees for that exchange in a fifth country, and where uneven enforcement of anti-money laundering policies might allow criminals to conduct what we call jurisdictional arbitrage in order to evade detection,” explained Eun Young Choi 

In fine, the nature of digital assets, which are decentralized by design, poses serious challenges to law enforcement efforts to combat criminal activity. 

Q & A 

“Would a legal regulation help stop crime and money laundering through cryptocurrencies? What are the difficulties of taxation of profit in cryptocurrencies?” 

Eun Young Choi: Laws actually, in fact, help mitigate the risk of illicit use of digital assets in a variety of ways. I think the most important of these is, as I discussed in my remarks, making sure that all countries understand the importance of implementing anti-money laundering policies and know your customer procedures and regulations in order to help facilitate transparency in the transactions that happen in cryptocurrency. I think the growth in cryptocurrency really came – in crime really came about because in large part criminals are looking for ways in order to hide their true identity, and using the traditional financial system has – there are oftentimes very robust antimoney laundering policies in place with banks, and so that makes it more difficult for criminals to hide their true identities. And so, we really are promoting through the FATF and other measures recognition by the international community that as long as there are differences in the level of enforcement of these types of policies, there’s always going to be an opportunity for jurisdictional arbitrage, which means criminals will look to countries with weaker controls and compliance with AML and CFT measures in order to conduct their criminal activities. 

So, there’s no doubt that you need to take a global approach?

Eun Young Choi: Indeed, we really need to look at this issue as one that is global in nature, one that requires everyone – all relevant stakeholders – to understand the interrelated and cross-border nature of crimes involving digital assets, and a commitment to raise the standard of anti-money laundering policies across the board. So that’s one way in which laws can help solve the cybercrime issue as it regards – as it relates to digital assets. 

Cryptocurrencies are illegal in Bangladesh, but the government is thinking about digital currency. Cryptocurrencies, good or bad? What’s the difference between cryptocurrency and digital currency? 

Eun Young Choi: (…) cryptocurrency is just a type of digital currency, and digital currency is just currency that exists in electronic or digital form in computers. Generally, digital currencies are managed, stored, and exchanged on computer systems, and they can involve a variety of different types of currencies, including currencies that are issued by a central bank in a country or a public authority, which are generally called Central Bank Digital Currencies or CBDCs. 

But they can also be issued sort of through a variety of platforms – created by developers or decentralized groups. And those tend to be called virtual currencies in this context. What makes cryptocurrency unique is that cryptocurrencies use cryptography to secure and authenticate those transactions. And the most popular of these is Bitcoin, which is on the Bitcoin blockchain, the public ledger, and Ether (ETH), which is native to the Ethereum blockchain. And so, cryptocurrency is oftentimes used interchangeably with digital currencies just because of its prevalence.

(The above is drawn from a series of online discussions entitled “A Shared Responsibility: Prioritizing Public-Private Partnerships in Cybersecurity.” L’express is invited by the Washington Foreign Press Center/US Dept of State to participate in those insightful on-the-record briefings so as to raise awareness on cybersecurity and cybercrime, and… data capture)