Financial Crime World

Barriers to Blockchain Investigations in Low-Resource Countries

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The cost of consulting blockchain analysis firms can be a significant hurdle for law enforcement agencies in countries with limited resources. However, many investigations involving cryptocurrencies start with the suspect, not with an anonymous transaction or address.

Identifying Suspect’s Cryptocurrency Addresses

In fact, investigators often begin by trying to identify which cryptocurrency addresses a suspect controls. This information can usually be obtained through forensic analysis of the suspect’s devices, without the need for blockchain analysis.

Expert Witnesses: A Valuable Resource

The relatively new and rapidly evolving nature of virtual assets means that blockchain technologies like cryptocurrencies are not commonly understood. This lack of understanding is true among law enforcement and judicial officers who may need to interpret evidence from blockchain analysis or digital wallets in order to convict a suspect.

  • Expert witnesses can be invaluable in clarifying and verifying evidence in court.
  • A clear explanation of the investigative steps followed will also help demonstrate to the court that the resulting evidence is no different than any other financial crime evidence.

Recovering Stolen Cryptocurrency Assets

Assets held in cryptocurrencies can be treated just like assets held in bank accounts or real estate. For example, a judge can issue an asset freezing order on a cryptocurrency account pending the outcome of the case. However, international cooperation on asset freezing is crucial, as cryptocurrency transactions can be made quickly.

Options for Recovering Stolen Cryptocurrency Assets

  • Transferring the currency into fiat currency through an exchange and holding an auction.
  • The US Department of Justice recovered nearly $50 million by auctioning off illicit bitcoins after shutting down the Silk Road online market in 2013.

Challenges in Recovering Assets

The volatility of cryptocurrency values can make it difficult for authorities to recover assets. For example, the Silk Road auctions of 144,336 bitcoins would have generated around $6 billion if sold today.

Recommendations for Law Enforcement

At the 4th Global Conference on Cryptocurrencies and Criminal Finances in 2020, seven key recommendations emerged from discussions. These included:

  • Adopting a multidisciplinary approach to investigations, combining financial investigation, cybercrime, and technical IT/forensic analysis expertise.
  • Supporting research and innovation on tools that facilitate the investigation and prevention of money laundering and terrorist financing through cryptocurrencies.
  • Upskilling quickly as the use of cryptocurrencies increases around the world.

Conclusion

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While there are challenges in investigating and recovering cryptocurrency assets, law enforcement agencies have several options available. By adopting a multidisciplinary approach, utilizing expert witnesses, and supporting innovation, authorities can effectively combat financial crime in the digital age.