4 Surprising Ways Criminals Are Using Cryptocurrencies to Commit Fraud

This year has turned out to be quite volatile for the world of cryptocurrency. The “joke” currency Dogecoin witnessed price hikes, Elon Musk caused Bitcoin prices to drop by 10%, and PayPal enabled the use of cryptos. If this wasn’t enough, Binance, the world’s largest cryptocurrency platform, is currently under investigation due to ever-increasing fraud concerns.

With innovative cybercriminals continuously using cryptocurrencies to commit fraud, it is better to stay ahead of the curve by knowing about the tactics they have been using to commit fraud. In this article, we will be diving into the 4 prevalent cryptocurrency scams and learn about what technologies businesses can use to counter them. 

1. Laundering Dirty Cash 

From scamming individuals through e-mails to directly stealing information through data breaches, cybercriminals know no bounds. Lately, cryptocurrency platforms have become the primary target for fraudsters, particularly for laundering dirty cash. In fact, a Chainanalysis report revealed that in 2020, a sum of 270 addresses collectively acquired USD 1.3 billion worth of illegal cryptocurrency, while a smaller group of 24 addresses acquired more than USD 500 million. 

If you’re wondering why crypto platforms are used for laundering funds, the answer is that the crypto space is not (as yet) strictly regulated by any central authority. Due to lower levels of scrutiny, transactions made by criminals are not closely monitored. This makes cryptocurrency platforms a haven for fraudulent activity. 

2. Phishing Scams 

A phishing scam is a form of a social engineering attack through which criminals make an attempt to steal consumer data. This data can include their sensitive information such as identity details or payment card credentials. Once this data has been acquired, scammers use it to commit countless other frauds or just sell it over the dark web to gain monetary benefits. What’s more alarming is that such scammers portray themselves as legitimate entities to trick victims. 

This is precisely what happened in September 2020, where the US Department of Justice (JOD) arrested two Russians for executing a multi-year phishing scam to manipulate the users of three prevalent crypto exchanges. Namely, the users of Binance, Poloniex, and Gemini incurred losses worth as much as USD 17 million. 

3. Ponzi Schemes

A Ponzi scheme is a type of investor fraud. In this, new clients are lured in to make investments at little to zero risks. These investments, which are marked as legitimate gains from another project, are then used to pay off old investors. Once new clients fail to come up, the scheme falls apart. 

Here’s an example to demonstrate how crypto-related Ponzi schemes work. A scam artist recently hacked more than 30 YouTube accounts in the U.S., making them appear as legitimate Microsoft brands. By using the hacked accounts, including a fraudulent account under the name of Bill Gates, he broadcasted a “free crypto giveaway” for whoever made crypto investments. In reality, the funds were being transferred into the criminal’s account, causing substantial losses for the victims. 

4. Tax Evasion 

Cryptocurrencies were initially created for one major purpose: to provide consumers with a privacy coin that would liberate them from regulatory bodies such as the government and banks. Because of this, numerous individuals began converting their funds into cryptocurrencies to avoid paying taxes. 

However, new regulations, such as mandatory KYC verification, are targeted at cryptocurrency platforms to mitigate the risk of fraud. Under these regulations, crypto traders have become liable to pay tax. Despite this, numerous crypto-owners continue to misrepresent their gains to avoid paying taxes. 

One-Stop Solution To Prevent Cryptocurrency Scams

To prevent the occurrence of money laundering, phishing scams, Ponzi schemes, and tax evasion, cryptocurrency platforms can utilize robust digital identity verification and AML screening solutions. These solutions leverage artificial intelligence models to weed out fraudsters and their illicit schemes. Listed below are some processes performed by these solutions that allow crypto platforms to keep fraudsters at bay:

  • Users are required to provide Personally Identifiable Information (PII) such as their full name, date of birth, phone number, etc. 
  • Official ID documents are required, through which the identity of the end-user is verified 
  • Proof of address may also be required in some cases as additional evidence of the user’s identity 
  • Money laundering risks are evaluated through an automated AML screening against criminal watch-lists and global sanctions

With the help of such technology, fake identities and fraudulent accounts are easily detected, while Politically Exposed Persons (PEP) and other high-risk customers can be closely monitored. As a result, this enhances the internal security measures of an organization and allows them to avoid huge sums of non-compliance fines. 

About the Author

Edward Grey is a freelance technical content writer and a digital evangelist. He has experience of 5 years in the IT industry and provides expert insights about topics such as Cybersecurity, Blockchain and Cryptocurrency, and Biometric Technology. When not busy writing, he can be found playing video games, questioning this decision, and haunting local bookshops.

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