In the long term, the FBI’s announcement Thursday (Feb. 17) that is has formed a National Cryptocurrency Enforcement Team will be a good thing for the digital assets industry. In the short term, however, it means that crypto’s reputation as a haven for money launderers and criminals is about to return to center stage following a year in which bitcoin was embraced by both mainstream finance and Main Street.
Financial giants ranging from JPMorgan Chase and Citibank to Goldman Sachs and BlackRock are offering clients bitcoin investments. The ability of digital currencies to “improve the efficiency of the financial system” have been embraced by the likes of Treasury Secretary Janet Yellen. Congressional fighting about cryptocurrency regulation now focuses as much on supporting innovation as it does protecting investors.
But the chorus of high-profile crime-related crypto news that began two weeks ago, with the Justice Department’s announcement that it made arrests and recovered $3.6 billion in the six-year-old, $4.5 billion hack of cryptocurrency exchange Bitfinex resumed on Wednesday. Speaking at a conference, Bryan Vorndran, assistant director of the FBI’s Cyber Division, called crypto “the only game in town” when it comes to ransomware extortion payments.
Read more: FBI Targets Crypto Over Ransomware Crimes
The agency doubled down on Thursday, announcing the creation of the FBI National Cryptocurrency Enforcement Team (NCET).
“With the rapid innovation of digital assets,” said Assistant Attorney General Kenneth A. Polite Jr., “we have seen a rise in their illicit use by criminals who exploit them to fuel cyberattacks and ransomware and extortion schemes; traffic in narcotics, hacking tools and illicit contraband online; commit thefts and scams; and launder the proceeds of their crimes.”
A Changing Conversation Changes Back
The FBI’s concern about crypto’s role in facilitating crime is a valid one.
As is the Securities and Exchange Commission’s fear that fraud, wash trading and bitcoin “whales” manipulating the market makes a bitcoin exchange-traded fund, or ETF, unsafe for retail traders.
But while investigations like the Bitfinex case that not only led to the alleged capture of the criminals — which is uncommon but no longer rare — but also to the almost unheard-of recovery of billions in allegedly stolen bitcoin shows that law enforcement is becoming more adept at blockchain tracking techniques, it also highlights the scale of the problem. And publicizes it.
On Jan. 6, top blockchain intelligence firm Chainalysis, which works with a number of leading U.S. law enforcement agencies, revealed that the amount of crypto used in transactions involving criminal activities grew to an all-time high of $14 billion last year — nearly double that in 2020.
But in also noted that just 0.15% of all cryptocurrency transactions involved criminal activities —an all-time low that is just one quarter of what was seen in 2020.
Which is a pretty clear indication that it’s not so much that law enforcement is getting better at cracking crypto crime — and it is — but that more legitimate crypto transactions are occurring.
It also means the crypto criminals will start making law enforcement’s job harder.
While noting that blockchain tracking offers law enforcement “some opportunities,” Deputy Director Vorndran noted that “the ability to pay crypto, script it immediately into a tumbler [meaning a mixing service], whether through an extortion payment or theft, is a huge, huge challenge for us.”
See: PYMNTS Crypto Crime Series: When Privacy Counts, Crypto Users Turn to Mixing Services
And that’s a huge, huge problem for an industry that is trying to — and succeeding at — leaving its unsavory reputation behind as it claims a seat at the financial mainstream table.
Now it’s up to the cryptocurrency industry to highlight the former while the FBI and other agencies like the DEA and IRS are focusing attention on the latter.
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