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How Law Enforcement Catches Cryptocurrency Crimes


Federal authorities are sending a clear message to individuals using Bitcoin or other forms of cryptocurrency for criminal purposes: law enforcement agencies are honing their ability to catch you. That’s due in large part to a heightened focus on cryptocurrency and crimes committed through the use of digital currencies, which we recently blogged about in a post discussing new federal cyber and crypto crime task forces. However, it is also simply a part of what law enforcement officers have always done – that is, trying to arrest and convict people for purported crimes.

While crimes can be committed using any form of money or things of value, cryptocurrency and specific networks like Bitcoin owe much of their explosive value and demand to criminal enterprise. Putting aside arguments about whether cryptocurrency is solely focused on facilitating crimes or that crime is a small but unfortunate side effect of its increasing popularity , there is no arguing the fact that law enforcement knows they have a fairly good chance of detecting criminal activity in the crypto space, even if there’s a learning curve.

In fact, there are a few general forms of crime which thrive upon the use of cryptocurrency, including:

In addition to the theft of cryptocurrencies themselves, law enforcement believes these types of crimes are given free reign by the anonymous nature of digital currencies, and have desperately worked to level up in order to keep up with playing what has become the cat-and-mouse game. This means that while they improve their understanding of cryptocurrencies and how they’re used, those using them are developing new methods for evasion, techniques for remaining undetected, and advancements in terms of cryptography and blockchain. In turn, law enforcement is being forced to innovate technologically as well, while still tapping into good old-fashioned detective work.

Cryptocurrency & “Anonymity”

Anonymity is one of the most fundamental tools in terms of crime. For example, an offense like money laundering is essentially committed in order to separate a person’s identity from financial transactions using criminal proceeds. Naturally, law enforcement focused on anti-money laundering efforts have major concerns about cryptocurrencies. However, the truth is that cryptocurrencies like Bitcoin are not entirely anonymous. Bitcoin transactions are visible to all who use the network. Through the use of monitoring technologies that track transaction ledgers, there can be significant visibility of activity.

While this means law enforcement can utilize transaction monitoring technology, it again means many people using Bitcoin and cryptocurrencies already know that, and have driven the development of more anonymous currencies known as “altcoins” in response, or use techniques to further enhance their anonymity. This includes technology that masks identifying information on transaction ledgers, as well as the use of software like The Onion Router (Tor), known for its association with the Dark Web and online marketplaces like Silk Road, to anonymize a person’s IP address.

Law Enforcement & Crypto Crime Investigations

These technologies have made cryptocurrency regulation and enforcement immensely difficult for authorities, and they’re being developed and improved at a rapid pace. However, the silver lining for enforcement agencies is that they are still able to fall back on more traditional methods of police work and investigation, especially in terms of financial transactions and white collar crimes. For example, no matter what cryptocurrency or concealment technology is used, a suspected criminal will need to eventually exchange their digital currency for real money. This can allow law enforcement to do two main things:

  • De-anonymize suspects – Observation of transactions or suspects can provide law enforcement with leads to work off, and lead to the stripping down of anonymity.
  • Detect unusual patters – Finding patterns and identifying unusual or suspicious behavior is a common tactic used by law enforcement for all types of criminal investigations.

Ultimately, agencies and task forces targeting crypto crime depend heavily on observation, transaction monitoring, and surveillance. Though the tools, technology, and means may be highly advanced, they are, in their most basic and essential functions, similar to your standard stakeout. However, the fact that crypto crimes are such a new space for law enforcement and regulators, their ability to crack down will depend a lot on collaboration, new technology, and new laws which provide consumers with the rights and benefits of using decentralized currency while balancing the need to regulate and enforce the space.

Charged with a Cybercrime? Trust Nationally Recognized Lawyers.

Ian N. Friedman and our legal team at Friedman Nemecek Long & Grant, L.L.C., L.L.C. Attorneys at Law have earned national recognition for our work in the field of cyber litigation, crypto crime, and state and federal criminal defense. If you or someone you love has been charged with a crime involving cryptocurrency, your defense, and ability to protect your rights depend heavily on working with legal representation that has extensive knowledge in this new and evolving area of criminal law, as well as proven results.

Although crypto crime cases involve highly technical and complex issues, law enforcement is always bound by the law and various rules and procedures with which they must. Our team knows how to apply our understanding of complex issues involved in these cases to existing laws, and how to protect our clients’ rights throughout every phase of the criminal process.

If you have questions about a potential case, contact us for a free and confidential consultation. Our firm represents clients throughout Ohio, the state of Ohio, and beyond.