Today, there are more than 2,200 types of cryptocurrency in the global markets. An estimated 34.6 million digital wallets are in use. One of the top U.S. cryptocurrency exchanges added eight million new user accounts in the last year. Many financial analysts predict that cryptocurrency will penetrate the mainstream and become a staple currency in the near future.
A broad range of new opportunities are emerging alongside the market’s increasing momentum. At the same time, cryptocurrency remains volatile, and lacks clear universal guidance and regulation. Crime relating to cryptocurrency has been on the rise. At FTI, we’ve seen increasing demand for forensic investigation work around cryptocurrency matters, and the number of clients reaching out for support around cryptocurrency has increased more than 100 percent in recent months.
Between new client matters and a gripping news cycle relating to cryptocurrency regulations, scams and investigations, our team has identified several key trends impacting the industry. Two at the top of our list include:
The dawn of a money-laundering crackdown.
The Financial Action Task Force, an intergovernmental organization that sets standards for policing illicit financing, recently released a new set of global rules aimed at cryptocurrency exchanges. These include a call for cryptocurrency exchanges to maintain and share sensitive user information, in a similar fashion as other financial institutions do under Know Your Customer (KYC) requirements. According to a Technology Review article, “whenever a use of one exchange sends cryptocurrency worth more than 1,000 dollars or euros to a use of a different exchange, the originating exchange must ‘immediately and securely’ share identifying information about both the sender and the intended recipient with the beneficiary exchange. That information should also be made available to ‘appropriate authorities on request’”. Many cryptocurrency industry players are concerned about how these rules will impact transaction and user privacy, while regulators view it as an effective way to crackdown on money laundering and blacklist terrorist organizations and other sanctioned parties. In the U.S., the Treasury Department already has a rule like this for exchanges, though to date it has not been enforced.
Of note is the fact that it can be quite easy for blacklisted users to get new addresses/crypto accounts, which begs the question of how effective the blacklist approach will be in cracking down on illegal financial activity. The creation and adoption of new policies will certainly fuel dialogue around regulations and the claims of some that cryptocurrency cannot be both anonymous and widely adopted.
The plot around cryptocurrency fraud, theft and scams is thickening.
Over the last year alone, we’ve seen numerous cases of millions of dollars of cryptocurrency disappearing, being lost or coming into question under mysterious circumstances. One of the most interesting cases this year was when a Canadian cryptocurrency exchange’s CEO—allegedly the only person with the private keys to cryptocurrency wallets containing more than $100 million in company money—died unexpectedly, leaving successors without access to critical funds. The company was unable to pay investors, and filed for protection under the Canadian Companies’ Creditors Arrangement Act, leaving shareholders questioning when, or whether, they would recover their money. In the months following, it was found that the CEO had stolen more than $200 million from his customers; and the company’s tax returns are also being investigated. In March, news broke of fraud and money laundering charges brought against the leaders of a global, multi-billion-dollar cryptocurrency pyramid scheme, which allegedly defrauded upwards of three million worldwide participants of more than $3 billion. The story has continued to develop in months since, with arrests made and new information revealed about the extent of the damages that have followed in its wake. In another recent case, a major Polish cryptocurrency exchange was shuttered under suspicious circumstances, claiming lack of liquidity. Customers were locked out of their funds. Not long after the announcement, the exchange’s co-owner was found dead. Investigators have been working both to determine whether his death was a result of suicide or foul play, and to attempt to recover funds for the exchange’s customers.
These cases are deeply interesting and are fueling the need for forensic investigators that can trace the path of digital assets. While cryptocurrency is often blamed as an enabler and contributor to scams and theft, it is often easier to trace than cash, and thus easier to investigate to expose criminal operations. The demand for robust and committed cryptocurrency tracing operations that can recover assets and bring criminal parties to light will increase as these cases continue to evolve.
Beyond these trends, our team is also keeping a close eye on emerging cryptocurrency litigation and civil disputes. We are actively involved in several current cases, providing clients with investigatory support and expert witness testimony. Also on our radar are emerging cryptocurrency in the U.S. and abroad, and the ways in which corporate blockchain applications are beginning to impact various industries.
The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting, its management, its subsidiaries, its affiliates, or its other professionals.