CRYPTOCURRENCY AND ECONOMIC CRIME: AN OVERVIEW OF TEN SELECT CASES

Recently, numerous criminal complaints, investigations, prosecutions, and convictions involved cryptocurrency-related economic crimes, including fraud, corruption, tax evasion, money laundering, self-money laundering, terrorist financing, and insider trading. This article explores some trends in the enforcement actions against cryptocurrency-based economic crime by briefly analyzing ten recent select criminal cases investigated or tried in different jurisdictions.

Cryptocurrencies between Violent and Nonviolent Crimes

In recent years, cryptocurrencies have been increasingly associated with criminal activities. Offenders have demonstrated to be able to use innovative technologies, adopt new-fangled fraudulent schemes, exploit existing loopholes in the law, and elude the enforcement actions of public agencies that are often not well-equipped and trained to investigate these sophisticated behaviors.

Even if the scale of the crimes or harms associated with cryptocurrencies is variable measured, there is no doubt that cryptocurrencies fuel crimes motivated by economic interests. As demonstrated by the scandals that occurred these years, cryptocurrencies have been significantly used to perpetrate or enable economic crime. This is the case, for example, of the enforcement actions charging six individuals in four separate cases and involving relevant cases, among which cryptocurrency-related fraud and the largest Non-Fungible Token (NFT) scheme, announced by the U.S. Department of Justice on June 30, 2022.

Moreover, recent criminal trials have revealed that cryptocurrencies are often used to perpetrate violent crimes. For example, in August 2022, a woman in the United States was sentenced to the statutory maximum of 120 months in prison for arranging a murder-for-hire through WhatsApp and paying the “hitman” (in reality, an FBI Special Agent) with “Bitcoin payments totaling approximately $10,000 for the murder of Victim … via internet transactions”.

Ten Cases of Cryptocurrency-Related Economic Crimes

This brief paper of the Corporate Crime Observatory explores some trends in the enforcement actions against cryptocurrency-based economic crime by briefly analyzing ten criminal cases recently investigated or tried in different jurisdictions. There are many criminal cases involving the use of cryptocurrencies worldwide, so the cases explained below are only a small part of them.

Moreover, the list does not include other typologies of cases leading to different sanctions that have been applied in this period to cryptocurrency-related behaviors, such as for example:

Economic sanctions, such as those applied on August 8, 2022, by the US Department of the Treasury’s Office of Foreign Assets Control (OFAC), against a cryptocurrency mixing service that allows to conceals of the original source of cryptocurrencies, including crimes;
Civil penalties, such as those applied on October 3, 2022, by the US Securities and Exchange Commission (SEC) against a famous influencer for failing to fully disclose that she was compensated for having promoted a crypto asset security on the Instagram account.

Accordingly, the following list of cases is not exhaustive but provides some recent examples of cryptocurrency-related economic crimes. This page includes not only summaries but also legal materials, press releases, and newspaper articles that may be useful for research, teaching, and training purposes.

Case 1 – Cryptocurrency Fraud Scheme in the “My Big Coin” Case

(United States)

On 21 July 2022, a federal jury in the United States convicted a person who offered, through a purported Las Vegas-based company, virtual payment services by using a fraudulent digital currency: “My Big Coin.” This digital currency was marketed between 2014 and 2017 to investors by making false claims about its nature and value. The investigated person was held liable for the fraudulent scheme as he falsely claimed that the currency was backed by valuable assets, that “My Big Coin” had a partnership with MasterCard, and that digital currencies could be exchanged for paper currencies.

Case 2 – Crypto Ponzi Scheme in the “BitConnect” Case

(United States)

On 16 September 2022, a man was sentenced in Federal Court for participating in one of the most relevant fraudulent investment schemes involving cryptocurrencies affecting many investors worldwide. The man conspired with others to perpetrate fraud by fraudulently marketing BitConnect as a lucrative investment connected to a purported technology owned by the investment platform. The reality was different, and BitConnect operated based on a Ponzi Scheme for which later investors were paid with the money of previous investors.

Case 3 – Fraud Against a Cryptocurrency Trading Platform

(United Kingdom)

On 21 July 2022, three people were found guilty of fraud, converting, and transferring criminal property at Preston Court in the United Kingdom. More specifically, the offenders exploited a loophole in the cryptocurrency trading platform based in Australia, dishonestly obtained credits of £21 million, and dishonestly withdrew £15 million, £2.7 million, and £1.7million, respectively, from their trading accounts. A financial adviser supported the offenders in converting the cryptocurrencies into cash and laundered it through foreign bank accounts. For the role played in the criminal scheme, the professional also was found guilty of converting and transferring criminal property.

Case 4 – Bribery through Bitcoin

(United States)

On 24 October 2002, a criminal complaint against two Chinese Intelligence Officers for attempting to obstruct a criminal prosecution in the United States was unsealed in federal court in Brooklyn. Based on the available documents, two Chinese officers would have developed a criminal scheme to steal files and information about an ongoing proceeding against a China-based telecommunication company and would have paid approximately $61,000 in Bitcoin bribes to a US government employee that they don’t know that was an agent of the Federal Bureau of Investigation (FBI).

Case 5 – Crypto Tax Evasion

(United States)

On 3 October 2022, a South Florida Resident pled guilty to attempted tax evasion after having concealed over $1 million in cryptocurrency from the Internal Revenue Service he gained from 2014 to 2017 thanks to dark web transactions, which consisted of buying and selling hacked online accounts logins. As clarified in the press release of the Department of Justice, the person who pled guilty “ran his virtual currency transactions through ‘mixers,’ on-line services that pool together (mix) the cryptocurrency transactions of different users, then distribute “clean” cryptocurrency to the users’ virtual wallets. The mixing makes it harder to determine the identity of those dealing in the cryptocurrency.”

Case 6 – Money Laundering related to the “OneCoin Crypto Scam”

(Germany)

The OneCoin Crypto Scam was one of the biggest scams of the last years, which consisted of a Ponzi scheme defrauding investors by selling a fake cryptocurrency. The scam was worthen $4 billion and led to investigations in many countries, from the United States to China. One of the promoters of the OneCoin Crypto Scam was a woman called “Cryptoqueen,” who vanished in 2017 and is currently on the FBI’s top 10 most wanted list and Europol’s most wanted list. Differently, the co-promoter is presently in jail in the United States. On 18 October 2022, Bloomberg reported that, among others, a lawyer in Germany allegedly transferred $20 million in the name of “Cryptoqueen” through the Cayman Islands to purchase two apartments in London. This is not the first case where a lawyer has been accused of laundering proceeds from OneCoin cryptocurrency fraud. Previously, another lawyer was convicted in the Manhattan Federal Court (United States) for having laundered around $400 million in proceeds of the OneCoin scam and received more than $50 million for his professional service.

Case 7 – Crypto Money Laundering Criminal Group

(China)

As reported by Reuters on 27 September 2022, China authorities have arrested 93 people and seized 300-million-yuan funds in the context of an operation against a money laundering criminal group, suspected to have laundered up to $5.61 billion through cryptocurrencies.

Case 8 – Self-Laundering Through Bitcoins

(Italy)

On 13 July 2022, the Italian Supreme Court of Cassation – Second Criminal Section confirmed the pre-trial detention against a person accused of fraud and self-laundering associated with the investment of proceeds of crime in virtual currencies. More specifically, the alleged fraudster received on the bank account money by victims. It transferred the crime’s proceeds online to a bitcoin exchange platform in Germany for the purchase of virtual currency. The Supreme Court argued that the “purchase of bitcoins lends itself to facilitating unlawful conduct, since ... it is possible to ensure a high degree of anonymity (the so-called permissionless system), without any control ... on the origin of the converted money)”.

Case 9 – Terrorist Financing Through Cryptocurrency

(France)

As reported by Le Figaro, two people were convicted by the Tribunal of Paris for their participation in a terrorist organization and financing of terrorism in September 2022. More specifically, these people have been sentenced for having financed jihadists in Syria via cryptocurrency networks. The funds transferred were worth approximately 280,000 euros.

Case 10 – Cryptocurrency Insider Trading Case

(United States)

On 12 September 2022, a person pled guilty to the first case of cryptocurrency insider trading in the United States. The tippee received confidential information from a former employee of a company, named “Coinbase”, about crypto assets to be listed on its exchange and was responsible for conspiracy to commit wire fraud in connection with insider trading in cryptocurrency assets.

Main Findings

The analyzed cases reveal:

the strict interconnections between cryptocurrencies and economic crime
the different typologies and characteristics of cryptocurrency-related crime
the transnational dimension of cryptocurrency-related crime
the role of platforms as potential offenders or victims of crime
the role played by professionals in crypto-laundering proceeds of crime
the role of law enforcement agencies in countering these sophisticated crimes.

More specifically, the cryptocurrency world is fertile ground for committing profit-oriented crimes. The typologies and characteristics of cryptocurrency-related crimes are variable, as demonstrated by the analyzed cases, including crypto fraud, corruption, tax evasion, money laundering, self-laundering, terrorist financing, and insider trading.

Moreover, criminal offenses are growing not only from a quantitative perspective. The proceedings related to the first case of crypto insider trading in the United States show, for example, how criminal offenses in this area are growing.

Moreover, the analysis of all these cases shows that these crimes generally have a transnational dimension and affect people (often thousands of victims) in various countries worldwide. As shown in a couple of cases, professionals - including lawyers and financial advisers - often play a crucial role in ensuring the laundering of the proceeds of crime.

These crimes are sophisticated and require high-level competence of law enforcement agencies to be countered. The United States agencies seem to be at the forefront of the fight against cryptocurrency-related economic crimes. The analyzed cases are clear examples of the higher ability of American law enforcers to cope with these behaviors.

Conclusion

Crimes related to cryptocurrencies must be monitored closely, considering their significant economic and financial impact. Different lawmakers, such as recently the European Union, are moving to strengthen their legislation on cryptocurrencies, including, for example, whistleblower protection. Moreover, national and international agencies are organizing or increasing their law enforcement actions against cryptocurrencies. For example, Interpol has recently introduced a center for countering cybercrime. Considering the ever-changing landscape, the Corporate Crime Observatory will continue monitoring not only criminal cases but also law changes impacting this area.

Materials

1. Cryptocurrency Fraud Scheme in the “My Big Coin” Case