A representation of virtual currency Bitcoin is seen in front of a stock graph in this illustration taken January 8, 2021.
NEW YORK, Feb 9 (Reuters Breakingviews) - Stealing cryptocurrencies is relatively easy. The hard part is turning the proceeds into cash. That’s the lesson from the arrest on Tuesday of Ilya “Dutch” Lichtenstein and his wife Heather Morgan, an artist and rapper also known as Razzlekahn. The pair face charges of conspiring to launder bitcoin stolen from a virtual exchange in 2016. Yet six years later the U.S. Justice Department was still able to seize unspent tokens worth $3.6 billion.
Crypto-based crime nearly doubled last year, with illicit addresses receiving $14 billion of proceeds, estimates Chainalysis. That’s probably an underestimate, as more wallets are linked to ransomware, ponzi schemes, and stolen funds over time. Wider adoption of digital tokens facilitates crime, while the soaring value of cryptoassets like bitcoin makes thefts look bigger in retrospect. The stolen coins were originally valued at $71 million; now they’re worth about $4.5 billion.
Criminals and money launderers like cryptocurrencies because owners are anonymous. But digital movements leave a trail. The DOJ says Lichtenstein and Morgan spent lots of effort trying to obfuscate the source of their funds. They split the stash and moved it from digital wallet to wallet, with small bits peeled off, sent to an online black market, and transferred to virtual exchanges using fictitious identities. They were then moved into other wallets, before the proceeds ended up in a dozen accounts in their real names. Some funds were converted into non-fungible tokens and gift cards for Walmart (WMT.N) and Playstation. Investigators doggedly followed the trail.
Though Crypto deserves its wild-west reputation, existing laws complicate the laundering process. Multiple accounts were frozen and then abandoned after crypto exchanges asked Lichtenstein and Morgan for information on the account holders. But “know your customer” rules are only as good as the effort put into them.
The cat-and-mouse game extends to services that muddy the crypto trail. The authorities are continually shutting down exchanges for fencing stolen virtual goods. One associated with this case, AlphaBay, relaunched last year after closing in 2017. Services like Tornado Cash mix coins from various users. Similar mixers have closed under regulatory pressure, and even seen their founders indicted.
The latest case is notable for its size and its suspects’ high profile. Less ambitious crypto criminals may slip under authorities’ radars. But digital trails don’t fade over time. Even if the current crypto bubble pops, the pursuit of criminals trying to launder their proceeds will go on for years.
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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
- The U.S. Department of Justice said on Feb. 8 it had seized over $3.6 billion of cryptocurrency and arrested a New York couple in connection with the 2016 hack of Bitfinex, a virtual exchange.
- Ilya “Dutch” Lichtenstein and Heather Morgan are accused of conspiring to launder 119,754 bitcoin stolen after a hacker initiated more than 2,000 unauthorized transactions at Bitfinex. The transactions sent stolen bitcoin to a digital wallet controlled by Lichtenstein. Justice Department officials said the bitcoin were valued at $71 million at the time of the hack, but with the rise in the digital currency's value they were now worth over $4.5 billion.
- Authorities claimed the two tried to launder the proceeds by putting them through multiple virtual currency exchanges and dark net markets or claimed the money represented payments to Lichtenstein’s startup. Prosecutors said the proceeds were spent on items ranging from gold to gift cards.
- The DOJ said the seizure was its largest ever.
Editing by Peter Thal Larsen and Sharon Lam