A cryptographic market investigation initiated by the Wall Street newspaper revealed that nearly $ 90 million worth of cryptocurrencies have been recycled through US-based cryptocurrency exchanges over the past two years.
According to the investigative article, tens of millions of dollars of badly managed bitcoins and an assortment of other cryptocurrencies have been converted into Monero's private currency. This is done through 46 cryptocurrency exchanges based in the United States. In the course of the investigation, 2,500 cryptographic portfolios were traced and their transactions dating back to 2016 were examined.
The cryptographic portfolios were presumably involved in hacks and blackmail schemes and were tracked using blockchain technology. Some of the exchanges found to be used by criminals to recycle illicit digital coins include Binance, Bittrex, ShapeShift, Gemini, Bitfinex, BTC-e, Changelly, Bitstamp, KuCoin and HitBTC.
Focusing on ShapeShift, a Denver-based company backed by Pantera Capital, FundersClub and Access Venture Partners, the investigation revealed that obscure characters, including North Korean agents, Ponzi scheme minds and credit card intruders they used the platform to recycle crypto.
Apparently, they chose ShapeShift because of the loose policies of Know Your Customer (KYC) that do not require the provision of personally identifiable information. To make matters more difficult for the authorities, cybercriminals seemed to be transacting outside the jurisdiction of the United States, and especially in China or Eastern European countries.
The investigation claims that North Korean actors who unleashed the WannaCry ransomware attack last year, while requiring bitcoin payments, have converted their illicit bitcoin income to Monero through ShapeShift.
Converting to Monero has made it virtually impossible to track down hackers, thanks to the robust pseudonymisation features of cryptocurrency. Of the $ 89 million total of illicit funds recycled through US stock exchanges since 2016, ShapeShift is expected to have generated approximately $ 9 million, while Bittrex has managed approximately $ 6.3 million.
The ShapeShift CEO, Erik Voorhees, rejected the accusations with a stinging reprimand of the WSJ report, rejecting it as misleading and deceptive. Through a blog post from the company, he said that the publication's surveys omitted important information about the company's efforts to combat encryption recycling.
He also said that investigators showed a lack of understanding about how the blockchain works, explaining that the suspicious transaction mentioned was not sent to the exchange by cybercriminals but by another exchange. Erik claimed that even if the claims were true, the volumes shown were bad and represented only 0.15% of the total volume traded by the exchange at the time.
The CEO added that ShapeShift has always complied with law enforcement requirements and has collaborated with authorities in over 30 surveys in over 13 countries around the world. Voorhees reiterated his company's commitment to stop money laundering, stating that it uses sophisticated internal anti-money laundering and blockchain forensic tools to detect suspicious accounts and transactions.
Apparently, the company also shares information with other exchanges to strengthen the efforts of the AML. Voorhees explained that ShapeShift only deals with encrypted encrypted transactions and has no legal exchange agreements. As such, no fiat currency can or has ever been recycled on the network.
On the way in which the exchange maintains transparency, all transactions are made public, thus making them traceable. The irony of the situation, according to the CEO, is that the Wall Street newspaper used this public information to initiate his investigation, and yet he accused the encrypted agency of lack of transparency.
He also rejected requests for illegal activities, stating, "ShapeShift has always been in favor of compliance with the laws of the jurisdictions in which it operates, even though many of these laws are not clear, constantly evolving, contradictory and in some cases ineffective."
The company's legal representative, Veronica McGregor, said WSJ that ShapeShift had actually received the list of suspicious accounts to which the investigation referred and that the company had banned them from the exchange.
That said, ShapeShift has announced that it will change its modus operandi between money laundering allegations and is currently trying to open a new trading system that will ensure greater transparency.
Cybercriminals use glasses services and abuse exchanges to recycle cryptography
The equivalent of about 266 million dollars of crypto was apparently recycled in the last year. However, the 2018 figures are much higher at 761 million dollars, and this does not include transactions performed using harder to track cryptocurrencies like Dash, Zcash and Monero.
According to Dave Jevans, CEO of CipherTrace, a cryptocurrency company specializing in tracking cryptography and undertaking advanced forensics, blending services are the cause of the sharp rise in computer crimes involving cryptography. Cryptocurrency tumbler services take digital currencies from a wide range of sources and mix them in a combined pool.
The coins are then shuffled and redistributed into different pools on the blockchain, making them untraceable. The services effectively cancel the link between contributors and recipients. These services work according to the use of complex formulas written by highly qualified experts in the area, some of which probably have a PhD.
In the case of ShapeShift, Dave said that although such exchanges offer legitimate services, they can be abused by malicious actors to hide the origin of fraudulently acquired funds. This is because customers can use these services anonymously and undertake cross-currency launches to move from cryptocurrencies. This makes digital coins untraceable.
In a case illustrated by the WSJ survey, an online company named Starscape Capital has fraudulently collected $ 2 million from investors, with the promise of outrageously high returns. Apparently, investors had to send payments to Ethereum. However, the website associated with the project went offline, leaving its supporters in limbo.
According to the survey, the company currencies were soon channeled into two cryptographic exchanges using different flows. ShapeShift was among them. The other was KuCoin, an exchange based in Hong Kong. About $ 517,000 of Ethereum would be sent to ShapeShift and converted into Monero's private currency, at which point the track had cooled.
From there, coins could be exchanged for bitcoins or fiat without any trace of their origin. And so until today, none of the founders of Starscape has ever been identified.