One persistent criticism by skeptics of cryptocurrencies has been that the criminal element of our society and terrorists profusely uses cryptos as a medium of exchange to carry out a number of their nefarious activities. The anonymity aspect of cryptos is always cited as the problem that must be solved by imposing strict KYC/AML/CFT compliance standards. There have been studies that both refute and support these claims, but Artem Sychev, the first deputy director of the Information Security Department of the Bank of Russia, told TASS that:
Criminals prefer to cash stolen money out rather than withdraw them with digital currency.
His central bank has always monitored how crooks move their ill-gotten loot about, and, as a result of its findings, has developed additional protective measures accordingly. Sychev noted:
In the Russian Federation, this [withdrawing of stolen funds with crypto] is used very rarely. Yes, sometimes cryptocurrencies are used to withdraw funds, but now it is not widespread, because it is much easier for an attacker to get cash.
Criminals tend to choose the path of least resistance, and in today’s digital world, bank cards still provide a simple and effective means for withdrawing stolen funds, but only to a degree. Sychev’s concern is the future and how technology may enable new and more convenient escape paths for stolen funds. Cryptos are definitely a possibility, but for now they are restrictive and inconvenient.
Sychec added:
It is not so important what technology will be developed in the near future — artificial intelligence or robotization. It is more important for us to understand what technologies and methods an attacker can use not only for an attack, but also for withdrawing money. Our vector of attention will be turned to that direction. For example, if we see that attackers learn to quickly withdraw money through some specific channel, we will accordingly build additional measures of protection.
Chainalysis, a well-respected blockchain intelligence and research firm, has recently reported that, in the case of ransomware attacks, crooks have chosen to use cryptos as their preferred medium of exchange 64% of the time. Due to its ubiquity and liquidity, criminals have also chosen to use Bitcoin as their token of preference 95% of the time, as well. Other methods involved using “darknet” mixing services and peer-to-peer exchanges to disguise tracks and the flow of funds. Chainalysis COO Jonathan Levin advised law enforcement to step of efforts focused on “darknet” activities and “warned that the crypto industry was starting to see the beginnings of terrorism financing.”
In April, we reported that the RAND Corporation had dispelled the notion that terrorists were using cryptos to fund their activities, contrary to unsupported claims by crypto cynics. According to its report, entitled “Terrorist Use of Cryptocurrencies”: “Cryptocurrencies are simply too undeveloped to be of much use to terrorists.” Yes, terrorism is real, but the need for ready cash or another medium for the “purchase of weapons, payrolls, supporting attacks, and other operational activities” is ever present, and the availability of cryptos as a medium of payment is just not developed enough to suit their needs.
The RAND report also revealed that limited reach and access were significant factors at this time, but the future remains uncertain. The small size of crypto markets can also pose problems: “Large transactions have impacts on price; demand increases are reflected in publicly visible prices, making the transaction non-anonymous.” Their conclusions were that, for now, using cryptos to fund terrorist activities is a “red herring”, but “the potential for the nefarious use of cryptocurrency is definitely there.”