On April 25, 2024, the FBI published a Public Service Announcement prohibiting users from transacting with crypto exchanges that are not registered with money services businesses. The FBI’s warning about crypto services stated that “Using a service that does not comply with its legal obligations may put you at risk of losing access to funds after law enforcement operations target those businesses.”
Related: Top Crypto Court Cases to Watch Post-SBF Sentencing
The announcement comes at a time when the nation is trying to make sense of alarming crypto services risks. The Chainanalysis Crypto crime report provides a snapshot of the crypto fraud situation in the country.
Summary of the Report
Looking at the report, it’s safe to assume that 2023 was a good year for anti-fraud efforts due to the reduction in the volume of fraud. Having said that, the report provides a damning snapshot of the cryptocurrency fraud situation in the country. What does the report say about crypto crime?
- Up to $24.2B was received by illegal addresses
- Sanctioned entities represent 61.5% and up to $14.9 billion of transaction volume. This represents entities that were sanctioned by the Treasury’s Office of Foreign Assets Control (OFAC), or activities emanating from regions that do not enforce US regulations.
- Ransomware extortion and dark market sales are still prevalent in Bitcoin transactions, despite updated security measures.
- Scamming represents the biggest percentage of crypto crime by transaction volume
- Scamming mostly occurs in the presence of positive market performance, as it takes advantage of users’ optimism to get rich quickly
Effectiveness of Federal Law in Combating Crypto Fraud
Crypto fraud has been under the radar of the Financial Supervisory Authority. The Authority relies on the Anti-Money Laundering Act (AML), a crypto law that provides guidelines for monitoring and preventing financial crime in fiat and crypto. AML crypto regulations create a safe space for crypto money-transmitting services. They provide greater access, stability, and convenience in crypto transactions. Ensuring anti-money laundering compliance within the crypto space maintains integrity in financial transactions.
The Enforcement Action against Samourai Wallet
The founders of Samurai Wallet were arrested and charged due to money laundering. The founders were charged with the development of tools that hid up to $100 million in fund transfers from dark web markets. They were also accused of facilitating up to $2 billion of unlawful transactions. The Samurai Wallet exchange has been seized as the investigations are ongoing.
In another 2020 case, scammers hacked Joe Biden’s Twitter account and sent messages promoting cryptocurrency scams.
Twitter responded promptly, but the damage had already been done as some users had already transferred their cryptocurrencies.
However, despite AML’s best efforts, crypto crime is still prevalent, and reports indicate that it is expected to increase in future as its decentralized nature attracts illegal behavior.
Tips to Protect Yourself against Crypto Fraud
If you’d want to protect your cryptos from getting into the wrong hands, here are some of the ways to safeguard your wallets.
- Check if the crypto exchange is registered with FinCen
The Financial Crimes Enforcement Network (FinCEN) operated by the US Treasury has a website that contains a list of registered companies. However, take heed as the inclusion of a business in the website does not guarantee its legitimacy. The same case applies to apps, as they might be found in a legit app store but fail to comply with federal requirements.
- Only use sites that follow KYC protocols
Fraudulent crypto exchanges may appear legit to dupe unsuspecting users. However, a key factor distinguishes them from legit sites; Know Your Customer (KYC) information. Banks and other traditional financial institutions require KYC money transmitting services registration to facilitate financial transactions. The same case should apply to crypto exchanges, as they should verify their customers’ identities before facilitating sending and receiving money. KYC information typically includes:
- Name
- ID
- Address
- Date of birth
As a last step, report fraudulent entities to www.ic3.gov. This raises awareness of the illegal activity to the FBI Internet Crime Complaint Center.
More Info:
- Hedge Fund Closes Operations After Losing Funds in the FTX Exchange
- The U.S. Justice Department Charged Three Individuals For $400M FTX Hack
- FTX and Alameda Research Transfer $10.8M to Binance, Coinbase, and Wintermute
Take Away
In summary, the FBI report highlights the need to be wary when selecting crypto platforms for transactions. The statistics provided by Chainanalysis paint a gloomy picture of the crypto crime situation in the country. It shows a constant increase in the rate of crypto crime, save for 2022, where the statistics demonstrated a downward trend. Experts associate the trend with poor economic performance as opposed to reduced fraud.
It’s given that the crypto space will attract genuine users. It’s also given that crypto investors must contend with the fact that fraud will be with us for some days to come, bearing in mind that crypto exchanges are largely unregulated, highly attractive due to holding large amounts of money, and contain vulnerabilities that make them easy to infiltrate.
Stay on the lookout for more crypto insights to come.
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