How bitcoin detectives at the IRS and FBI are catching crypto crimes – Vox
As an agent with the irs cyber investigations team, chris janczewski led some of the government’s largest cryptocurrency busts, including the takedown of a major child exploitation site and the seizure of much of the nation’s $4.5 billion in bitcoin stolen during the bitfinex hack in 2016. . Those busts helped Janczewski make the jump to the private sector a few months ago. he is now the head of investigations for a private crypto-intelligence firm called trm labs, which, among other things, focuses on detecting illicit crypto transactions. Most people probably don’t even know this kind of crypto detective work exists, but Janczewski is making a career out of it.
“I don’t think the sentence ‘Millions of dollars worth of stolen nft from a bored ape yacht club’ existed until a couple of weeks ago,” Janczewski told Recode. “There’s not necessarily a playbook, or not a lot of experience, for people who’ve looked into that sort of thing.”
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Cryptocurrencies are an increasingly common factor in criminal activity. It shows up in everything from terrorist financing operations and ransomware attacks to run-of-the-mill fraud and scams. the problem is also likely to get worse. chainalysis, a crypto research firm, found that crypto crime transactions hit an all-time high last year.
As a result, there is a growing interest in researchers like Janczewski, who know how to scour the blockchain (the huge public ledger that records cryptocurrency transactions) for clues linking anonymous cryptocurrency exchanges to real people. They can be sued or charged with a crime. These investigations have brought to light all manner of criminal operations, including an illegal bitcoin ATM network that a New York man used to launder money, and a $1.1 million “rug pull” involving NFT cartoons. called frosties. (An nft rug pull occurs when someone tricks people into investing in an nft project, only to later cancel the project and keep the money.)
Demand for crypto crime fighters is on the rise. The Securities and Exchange Commission said last week that it would double the size of its cyber unit and expand its focus on the crypto industry, including NFTs and crypto asset exchanges. The Justice Department formed a crypto watchdog group last fall, and the FBI said in February that it would assemble its own crypto team.
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At the same time, there has also been a rise in the business of private teams conducting their own cryptographic research, often on behalf of individuals or other companies. companies like trm labs and cipherblade, another blockchain research company, act almost like private detectives in the age of cryptocurrencies. There are even crypto vigilantes: independent, and often anonymous, internet sleuths who look for evidence of crypto scams and schemes in their spare time.
Like most things related to cryptocurrencies, the job of a crypto sleuth is not necessarily intuitive. all crypto transactions are publicly recorded, which means identifying the wallets criminals use to store their digital currency is relatively simple. But because these transactions are also anonymous, cryptocurrency investigators must look for clues that might connect a particular cryptocurrency transaction to other activity on the web.
for example, they could link a wallet, which is effectively an address for a crypto account, to an established platform, like coinbase (these companies are legally required to track the identities of their customers) or a part of the dark web that It’s already on the researchers’ radar. Doing these investigations often requires going undercover online, sometimes using covert and disguised accounts that the government has seized and hand-held for years.
“In traditional investigations, we know who committed the crimes and we follow the money to prove it,” explains dana windsor, a spokeswoman for the irs criminal investigations unit, who had 80 cryptocurrency-related cases on her file at the end of the last year. “In crypto investigations, we know what the crime is and we follow the money to prove who committed the crime.”
That may sound simple enough, but finding these connections is extremely difficult and usually requires technical expertise that veteran detectives simply don’t have. Federal agencies like the IRS, the FBI, and the State Department have spent millions of dollars contracting with private crypto-intelligence firms. these businesses often have access to powerful machine learning software that can filter through a large number of transactions and search for potential customers. Even with this software, these investigations are becoming more difficult as criminals are constantly developing new ways to hide their methods.
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One of the biggest obstacles to fighting crypto crime is the fact that there isn’t necessarily an established channel of people who can help. Right now, there is no specific path to becoming a crypto researcher, so it has mostly been a career that people have stumbled upon. Janczewski, for example, studied accounting before becoming a crypto cop for the IRS. and cipherblade crypto researcher paul sibenik told recode that he got into crypto detective work after doing side work consulting for people in divorce cases who thought their spouses were hiding bitcoins.
Another problem is that some of the companies that have the crypto expertise needed by the government are, at the same time, in conflict with regulators. Last month, for example, Anchorage Digital, the bitcoin bank that has contracted with the US Marshals Service to store cryptocurrencies that the government seizes after criminal investigations, was singled out by the Office of the Comptroller of the Currency for violating rules. of money laundering. now that the contract is on hold.
Of course, the people who know the blockchain best may be more interested in profiting from cryptocurrencies than regulating them. Many of the people most excited about crypto are actively opposed to the idea of ramping up the app.
“the government has a very hard time competing in the crypto area because technologists are largely recruited from the web3 space because there is a lot of venture capital money,” john reed stark, an outspoken critic of crypto and former head of the SEC’s internet enforcement office, he told recode. “There is absolutely a real brain drain in government when it comes to technology.”
That could soon be a big problem. President Joe Biden has insisted that there is a place for crypto in the mainstream, as long as there is also a place for crypto rules. But without people enforcing those rules, it’s not clear that much is going to change in the world of cryptocurrencies. After all, as long as there are cryptocurrencies flowing through our financial system, there will be people determined to use them in less than legal ways.
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