Europol has issued a new report on Internet crime in which it outlined a number of scenarios involving bitcoin.
Called the Internet Organised Crime Threat Assessment (iOCTA), the report examines the use of bitcoin on various dark web sites, by organised crime and individual actors, and calls digital currencies an ‘enabler’ for cryber-criminals and a challenge for law enforcement.
However, it makes a clear distinction between bitcoin and digital currencies designed with true anonymity in mind, like darkcoin, warning:
“We feel it should concern everyone that the latest cyber currencies are intended to be truly anonymous and to facilitate anonymous transactions. We face a situation where law enforcement may be completely unable to trace even very large criminal transactions.”
The report is in line with Europol’s previous statements and reports on bitcoin. Speaking at a security conference in March, director Rob Wainwright said digital currencies are being used as “an instrument to facilitate crime,” particularly for money laundering.
Dark net, Tor and bitcoin
Europol finds several instances of digital currency use on child sexual exploitation dark net sites. The agency warns that the relative anonymity of dark net services – made possible by platforms like Tor – has led to a proliferation of various platforms selling and distributing child abuse material (CAM).
In addition to disturbing videos and images, some sites host open forums on evading law enforcement and perpetrating a range of perverse offenses involving children.
Europol notes that such content is usually not exchanged for commercial reasons and that a “good level of trust” is necessary of those wanting to purchase CAM.
The report warns:
“There are instances of CAM being exchanged via ‘Tor mail’ in exchange for bitcoins. Even though most offenders do not exchange CAM for commercial reasons, the valuable significance of the material associated to the anonymity of Tor and bitcoin creates the ideal setting to add a financial benefit to a traditional exchange.”
Europol finds that traditional commercial sexual exploitation of children online (CSECO) has been lower in recent years, and the amount of commercially available CAM is small.
However, SCECO hackers-for-hire are sometimes employed to hack servers and provide hosting for child abuse material. These hackers usually demand payment in bitcoin, but most of them were found to be fraudulent – they would simply take the money and run, without providing any CAM in exchange.
Abused by criminals
Europol points out that decentralised digital currencies such as bitcoin and darkcoin use peer-to-peer networks with little in the way of control. The report notes that digital currencies are generally designed for legitimate use, but they are “heavily abused” by cybercriminals.
The report says that volatility is an issue even for criminals:
“Cybercriminals often favour centralised schemes which, being tied to tangible assets, are inherently more stable compared to cryptocurrencies whose price is often highly volatile due to high levels of speculation. Of the centralised schemes favoured by the criminal community WebMoney is still very popular, particularly for criminal-to-criminal payments, as is Perfect Money to a lesser extent.”
Bitcoin is gaining traction in cybercrime circles, according to the report. Europol cites Silk Road as an example of a bitcoin-based illicit marketplace. The report also says that bitcoin is beginning to “feature heavily in police investigations,” particularly those dealing with ransomware and extortion.
Further, it finds that distrust in centralised schemes has been growing since the takedown of E-Gold in 2009 and the dismantling of Liberty Reserve in 2013. Criminals find cryptocurrencies attractive due to their distributed nature, which makes them resistant to law enforcement disruption and government control.
The iOCTA says that cryptocurrencies are not an ideal match for online crime for a number of reasons:
“The transparency of such systems is a likely deterrent, potentially providing law enforcement with a financial trail to follow. The market is also volatile with currency prices fluctuating significantly and often. Furthermore a number of exchange services were hacked in 2014 with many users losing their online e-wallets with no recourse for compensation.”
Money laundering concerns
Although they may not be the perfect currency for some criminals, Europol warns that digital currencies could “become an ideal instrument” for money laundering.
Criminals can use unregistered dark net exchanges, or try to exploit legitimate exchanges with poor know-your-customer (KYC) controls. Another problem is the rise of ‘tumblers’ and ‘mixers’ – services which allow users to launder their cryptocurrency, while charging a relatively small commission. The report looks into the possibility of using online gambling sites to launder ‘dirty’ cryptocurrency.
Europol concludes that law enforcement needs to pursue the possibility of obtaining evidence from virtual scheme operators – as they would from any other institution – and to be able to freeze and seize funds.
“Virtual currencies represent an example of technology overtaking legislation. Few jurisdictions recognise virtual currencies as a currency or have managed to adopt adequate regulatory controls.”
The report issues a number of recommendations calling for new EU legislation that would apply anti-money laundering regulations to digital currencies and strengthen relationships with money transfer businesses, banks, law enforcement and digital currency operators.
Image via Europol