Justice Gets 15 Guilty Pleas for International Crime Ring that Laundered Money Through Cryptocurrency Exchanges

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The case demonstrates law enforcement could be up to the challenge of tackling the anonymity tool, one expert says.

Fifteen people entered guilty pleas for involvement in an international scam that posted fraudulent auctions online and laundered money through cryptocurrency exchanges, according to the Justice Department. 

One expert says the case could serve as a template for nation-state actors using cryptocurrency exchanges to cover their tracks more in the future. 

“Today’s modern cybercriminals rely on increasingly sophisticated techniques to defraud victims, often masquerading as legitimate businesses,” said Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division in a press release Thursday. “These guilty pleas demonstrate that the United States will hold accountable foreign and domestic criminal enterprises and their enablers, including crooked bitcoin exchanges that swindle the American public.”

Law enforcement officials have noted that increased use of cryptocurrencies like Bitcoin has made it especially challenging to nail down cybercriminals. But while cryptocurrency exchanges encode transactions hiding the identity of the parties, those codes are permanently and publicly recorded across a large number of computers. It’s possible to study them and identify patterns in transactions that could eventually lead to the identity of a suspect, and law enforcement might be getting better at this. 

“Compared to 2016, in 2019 and 2020, we’re seeing more cases where it’s clear that law enforcement is following this stuff and is not totally dumbfounded because something involves a Bitcoin address,” Yaya Fanusie, a former CIA analyst and current senior fellow at the Center for New American Security told Nextgov. “It gives us the assurance that at least U.S. federal law enforcement is capable of doing an investigation that involves cryptocurrency.”

In the case Justice highlighted Thursday, the defendants—individuals in their 30s based both in Romania and the United States—admitted their involvement in a scheme where they established their own cryptocurrency exchange and used it as a passthrough for traditional payments they got from advertising non-existent high-value items such as cars on auction sites such as eBay and Craigslist. 

“According to court documents, members of the conspiracy created fictitious online accounts to post these advertisements and communicate with victims, often using the stolen identities of Americans to do so,” the press release noted.

The defendants also used IP address anonymizing services, according to court documents. Fanusie said cryptocurrency exchanges are part of an ecosystem primed for cyber malfeasance.  

“Cyber services like domain names, [virtual private networks], servers, that infrastructure is ready-made to be leveraged through cryptocurrencies,” he said. “It’s already an environment that invites anonymous use. Cryptocurrencies are the native money of the internet. So if we know that we’re going to have more cyber threats, it makes sense that cryptocurrencies are going to play a part.” 

So it’s good that law enforcement doesn’t seem daunted by the changing landscape of criminal activity, he says, because “this time [a cryptocurrency exchange] was being used by criminal fraudsters, but there are definitely parallels in what we’ve already seen from nation-state actors.”

Fanusie has written about how cryptocurrency exchanges were used to launder and steal money and delay law enforcement’s identification of suspected hackers in high-profile cases involving persons affiliated with China and North Korea and Russia.  

He said the 2018 indictment leading up to Thursday’s guilty pleas is “almost a blueprint for how nation-state actors could be thinking about running their operations,” adding that the case “confirms that the main thing to look out for is not so much fundraising, the biggest thing is that cryptocurrency is one part of a laundering process. It’s to move the money to somewhere else so you lose the trace.”  

For now, law enforcement officials seem empowered by their success after an investigation that involved the U.S. Secret Service, Kentucky State Police, Lexington Police Department, IRS Criminal Investigation, and U.S. Postal Inspection Service, the Justice Department’s Organized Crime Drug Enforcement Task Forces and International Organized Crime Intelligence and Operations Center, as well as the Romanian National Police Service for Combating Cybercrime and the Romanian Directorate for Investigating Organized Crime and Terrorism. 

“Through the use of digital currencies and trans-border organizational strategies, this criminal syndicate believed they were beyond the reach of law enforcement,” said Assistant Director Michael D’Ambrosio, U.S. Secret Service, Office of Investigations. “However, as this successful investigation clearly illustrates, with sustained, international cooperation, we can effectively hold cybercriminals accountable for their actions, no matter where they reside. I commend the hard work and perseverance of all those who joined together in this investigation and prosecution. This includes our partners in Europe, as well as those closer to home.”

It was also helpful that Romanian officials secured and coordinated the arrests and extraditions from that country of more than a dozen defendants, the release said. 

“The 15 defendants who have pleaded guilty in this case have yet to be sentenced,” the release notes. “Two other defendants in the case are scheduled for trial starting on Sept. 14, 2020, before the Honorable Robert E. Wier of the U.S. District Court for the Eastern District of Kentucky. Three others are fugitives. This case is being prosecuted by Senior Trial Attorney Timothy C. Flowers and Senior Counsel Frank H. Lin of the Criminal Division’s Computer Crime and Intellectual Property Section and Assistant U.S. Attorneys Kathryn M. Anderson and Kenneth R. Taylor of the U.S. Attorney’s Office for the Eastern District of Kentucky.”

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