In looking at the 59 criminal cases in the study, a number of interesting trends emerged:
1. Crypto was primarily used as a means of payment or money laundering in drug-related offenses, usually on darknet markets
80% of the criminal activity in the study’s dataset involved drug-related offenses. Where cryptocurrency was involved, it was generally used as a means of payment for illicit goods on darknet markets or to launder criminal proceeds. This finding is consistent with the large amount of darknet activity we have seen in recent years – from Silk Road to AlphaBey and Hydra.
2. Crypto was usually cited generically, or as Bitcoin
The criminal decisions in the dataset either refer to “Bitcoin” specifically or “cryptocurrency” generally, rather than other specific types of cryptocurrencies or blockchain-based crypto-assets. This is consistent with Bitcoin’s dominance – comprising over 90% of the market until around 2017 – during the time of the study. Only in 2 instances do we see exceptions to this trend, with Ethereum and Litecoin specifically mentioned in 2019 cases.
3. Use of crypto an aggravating factor in sentencing
Looking at sentencing decisions, the study found that the use of crypto was generally an aggravating factor, on the basis that it was “indicative of planning or obfuscation and therefore a greater degree of sophistication or seriousness of offending”.
The authors note there was “little if any consideration given to the type of cryptocurrency transactions being made”, and argue that this may be a “relatively simplistic characterization”. Instead, they underline that it may be worth considering nuances such as whether the transaction was on a centralized or peer-to-peer exchange, whether mixers were involved, and whether it used common tokens like Bitcoin or privacy coins like Monero.
According to Ari Redbord, TRM’s Head of Legal and Government Affairs and former US prosecutor, this reasoning would be consistent with the US federal sentencing guidelines, which call out obfuscation techniques such as “encryption” and “scrambling” during the commission of an offense to avoid detection as obstruction of justice, yet do not specifically include the use of cryptocurrencies as an aggravating factor.
4. Most investigations appear to have been reliant on traditional policing methods
The study found that most of the offenders were caught using traditional policing methods such as intercepting packages and telephone conversations, physical surveillance, search warrants, and obtaining admissions under questioning, as opposed to “more advanced blockchain analytics methods.” The authors posit that this could be reflective of the “relatively unsophisticated nature of the offending” and “offenders’ cooperation with law enforcement in many of the cases.”
Notable exceptions were two cases in 2017, where Victorian and Western Australian police caught offenders by going undercover as sellers on darknet markets. It is also worth noting that the time period of the study precedes significant investments into crypto-specific policing capabilities, such as the set up of the Australian Federal Police’s (AFP) dedicated crypto team in September 2020.
What lies ahead?
So, where do we go from here? While the study provides useful historical insight, the crypto regulatory and enforcement landscape in Australia has evolved significantly since 2020:
1. Increased law enforcement and regulatory focus on cryptocurrencies
The Australian Transaction Reports and Analysis Centre (AUSTRAC), which has been regulating digital currency exchanges (DCEs) in Australia for AML/CTF since 2018, has stressed that Australian DCEs must be vigilant against crypto-based financial crime. AUSTRAC deputy chief executive John Moss noted in an April 2022 statement that crypto had become a “standard part of the money-laundering tool kit” for organized crime groups in Australia” and was no longer a “niche option.” That same month, AUSTRAC also published dedicated guides on preventing ransomware attacks and criminal abuse of digital currencies.
In addition to the use of crypto for darknet market activity, policy makers are focused on crypto-related scams and fraud. Data from the Australian Competition and Consumer Commission (ACCC) found that Australians reported AUD 221 million (USD 145 million) lost to crypto-related scams in 2022, a 162% increase from 2021. This number may, in fact, be much higher, given the chronically severe underreporting of such scams, with the ACCC estimating that only 13% of scams are reported.
The Albanese government’s crypto reform agenda has had the ACCC step up efforts to educate consumers and prevent scams, and the Australian Securities and Investments Commission (ASIC) focused on enforcement against unlicensed crypto asset services.
2. Increased crypto policing capabilities
Australian law enforcement is expanding its suite of capabilities and powers to fight crypto-related crime.
For example, the Australian Federal Police (AFP) – which established a dedicated crypto team in September 2020 – expanded that unit last year. According to Stefan Jerga, national manager of the AFP’s crypto team, “setting up a specialized team has allowed [the AFP] to build more powerful capabilities and provide more targeted support across [the AFP].”
The state of Victoria also enhanced its police force’s asset seizure and information gathering powers for digital assets in a September 2022 legislative amendment. Victoria Police are now able to seize crypto and other digital assets, including wallets, as well as direct crypto platforms to provide information on suspects. This follows Victoria Police’s August 2021 seizure of AUD 8.5 million in crypto linked to a dark web drug dealing syndicate, a record for Australian law enforcement.
Jonno Newman, Global Investigator at TRM Labs and former cybercrime training supervisor with the South Australia police, explains:
“Cryptocurrency investigations were previously seen as a niche and specialized field. However, time has shown that crypto is not exclusive to cybercrime, and that more traditional offending can also have a crypto nexus. The good news is that the transparent and often traceable nature of the blockchain means the use of cryptocurrencies can provide law enforcement with additional avenues of investigation. With increased investments into foundational training and blockchain intelligence tools, the capabilities of law enforcement agencies around Australia has increased exponentially. Current capabilities are vastly different to 2020, and we are reaping the dividends in the form of real world results.”
3. Increased international cooperation
Given the borderless nature of crypto, cross-border cooperation between crime-fighting authorities is especially critical to disrupting fraud and financial crime. And, we have seen increased cooperation with foreign law enforcement partners. An April 2022 seizure of illicit drugs, AUD 5 million in cash and three crypto ATMs by the New South Wales Police was successfully carried out with support from the US Department of Homeland Security as well as the Australian Criminal Intelligence Commission. Recently, the AFP also entered into a new arrangement with the Indonesian National Police to improve coordination on cybercrime investigations and better respond to the “significant regional threat of cybercrime.”
Matt (Billy) Humphries, TRM’s APAC Director of Law Enforcement Relations and former AFP senior digital forensics specialist says that international collaboration has long been a cornerstone of the AFP’s international engagement and crime strategies:
“The last few years of my AFP career within International Command involved an extensive amount of work across APAC. During this time, we witnessed a significant increase in criminal activity involving blockchain technology, which brought new technical challenges not previously considered within traditional policing strategies. Operationalizing the knowledge and experience learnt within a collaborative international cooperation environment was a real force multiplier in fighting transnational crypto crime.”
In conclusion
What we see from the study of court cases is clearly just the beginning of the analysis of crypto-related crime in Australia. What might have been relegated to darknet market activity a few years ago has morphed into a more sophisticated and larger ecosystem of activity with the growth of cryptocurrencies. While illicit actors seek to move cryptocurrencies at greater scale and speed, we also see regulators and law enforcement harness the power of blockchains for investigation, enforcement and regulation. Expect the next exploration of the court dockets to paint a broader picture.
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This article was first published on TRM Insights by Angela Ang, Senior Policy Advisor at TRM Labs, and former Deputy Director at MAS.
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