Crime and cryptocurrency in the wake of Covid-19

The rise of cryptocurrency and vastly differing approaches to regulation and enforcement, set against the…

The rise of cryptocurrency and vastly differing approaches to regulation and enforcement, set against the far-reaching consequences of technology and the Covid-19 pandemic, formed the basis of an ICLG.com webinar.

Global Legal Group publisher George Archer introduced the ICLG.com webinar ‘Build back better – or slaves to the technology of the future?’, handing over to Keith Oliver, commercial and fraud litigator and head of the international practice at Peters & Peters Solicitors, who moderated the discussion.

Originally intended to be about cryptocurrency only, the remit of the session was subsequently “broadened as technology has caused immense changes in our home and work lives”. Oliver continued: “Covid means we must embrace digital, and fraud is on the rise.” He illustrated how quickly and easily people can succumb to fraud with the story of an IT manager sending multiple ‘phishing’ messages purportedly from a courier company to employees, which required entry of bank details to secure a delivery, and which garnered a number of responses with the requested information.

He stated that two sets of chambers had reported their IT security being compromised in the last month alone, and cited a 62% increase in ransomware globally since 2019, with hospitals, government departments and even petrol queues affected, highlighting the “very real world consequences of technology”.

Oliver also spoke of cryptocurrency as many criminals’ payment method of choice and the consequent “growing rush” to regulate and trace it, as well as the increasing acceptance of cryptocurrency in the wider world community such as El Salvador’s adoption of Bitcoin as legal tender, and sharing an anecdote during his recent trip to Antigua where he noted a restaurant that accepted Bitcoin Cash as a payment method.

The floor was then passed to Ben Hammerton, a national forensic accounting and investigations director and head of eDiscovery at Quantuma Advisory, who focused on the “rise of robo-lawyering” in how technology can assist with investigations and litigation regarding cryptocurrency, and how it has kept pace with the huge quantities of data generated. Technology can automatically translate, collate, tag and batch documents, as well as create concept cluster maps to group conversations, domain names and key words, all of which facilitates “efficient review management”, although technology cannot do everything: “You still need old-school thinking,” he said.

A well-designed system means you can easily “find out who has been speaking to whom, the direction of travel, the words used, and the relationship to other conversations”, as well as see a “heat map of important terms, and quickly zoom to documents that contain trigger words…[which is] all very useful information for building a picture”. Hammerton showed a ‘concept wheel’, a graphical representation of the most-used words, phrases and concepts, giving clear insight into “conversations, aliases and money amounts” on the dark web. He summed up by emphasising that the rise of technology itself is not to the detriment of the human race: “Technology is not scary, the robots are not taking over [because] humans need to pile up everything to get to the evidence.”

Hong Kong co-managing partner and head of litigation and dispute resolution at Zhong Lun Law Firm, Dorothy Siron illustrated five major types of fraud affecting cryptocurrency as initial coin offering scams, cryptocurrency exchange hacking and scams, ‘pump-and-dump’ conduct, Ponzi schemes and phishing. She further explained that an exchange scam can be perpetrated “on the [cryptocurrency] wallet or the exchange itself” perhaps via liquidation of the exchange, and that pump-and-dump is a well-worn tactic in the context of penny stocks, with Ponzi schemes also having a long history before the advent of cryptocurrency.

As a corollary she cited the principal means of legal recourse as seeking assistance from regulators, issuing a breach of contract claim, making a claim of misrepresentation, and suing for negligence, while pointing out that “it is difficult to pursue legal action due to the decentralised nature of cryptocurrencies”.

She referenced the USD 660 million iFan/Pincoin scam which emerged in April 2018 in Vietnam, pointing out that even large companies that focus on security such as Twitter are not invulnerable to fraud, and further underlined that cryptocurrency policy varies widely around the world, contrasting China’s ban on its mining and refusal to recognise it as legal tender, with Japan’s treatment of cryptocurrencies as a legal asset and subject to normal taxation and regulation. “This is not to say that cryptocurrency is bad…it is here to stay, but keep your eyes open for scams everywhere”, she concluded.

Kobre & Kim investigations, fraud and litigation lawyer Nicholas Surmacz spoke about the history of cryptocurrency and its founding principles as “a secure strong central currency not subject to central banks”, but which has “suddenly become a speculative investment” with authorities still playing catch-up. He pointed to burgeoning interest from around 2010 on the dark web, a sub-section of the non-publicly accessible deep web, “where the worst of the worst get together” to trade illegal drugs, stolen data, ransomware and worse via cryptocurrency payments. Although one of the most notorious sites, Silk Road 2.0 was eventually shut down by the authorities, it is essentially a cat-and-mouse game as “when you shut one down, another pops up” in its place.

He argued that some of the perceived transparency and stability advantages of cryptocurrency have essentially been undermined by extremely volatile valuations, citing Bitcoin’s meteoric rise from under USD 1,000 per coin at inception, to over USD 60,000 in March. The opportunity to make a huge sum of money is at the crux of the cryptocurrency fraud problem: “Now there is money in the space, there is the opportunity to [perpetrate] fraud rather than investment, leading to the scams,” said Surmacz.

Other topics discussed during the session included regulation of peer-to-peer cryptocurrency exchanges, the scope for cross-jurisdictional co-operation on law enforcement, and the desirability of a consistent worldwide approach.

Watch the video of this panel here.