The Unique Characteristics of Virtual Assets

Core to the appeal of cryptocurrencies is the ability to transfer significant value peer-to-peer (from one user to another without the need for a typical custodial role played by a financial intermediary like a bank), pseudonymously (without needing to reveal one’s full and real identity), immutably (or irreversibly), with global reach and increased speed and cost efficiencies. 

These features that make cryptocurrencies attractive to legitimate users, for example, when remitting funds from one jurisdiction to another to bypass costly money service bureaus, also make cryptocurrencies attractive to illicit users when transacting with one another or when sending criminal proceeds anywhere in the world at lower cost, with less apparent oversight/transparent record keeping and friction.

Just as with fiat currencies, criminals and rogue nations look to exploit new forms of payments to undertake a range of activities, including cybercrime, proliferation financing, frauds and scams, sanctions evasion, narcotics and human trafficking, and terrorism financing. The inherent features of cryptocurrencies coupled with insufficient regulatory controls are exploited by these bad actors for gain and make cryptocurrencies attractive to them as a form of payment and laundering. 

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With the increased adoption of cryptocurrencies within both licit (making everyday members of the public targets of frauds/scams) and illicit circles, law enforcement must quickly adapt to these new technologies to disrupt criminal endeavours by bolstering their ability to investigate, seize, and recover virtual assets. 

In recent years, some of the most successful investigations into bad actors and subsequent takedowns of illicit platforms all started with the deployment of covertly sourced and obfuscated cryptocurrencies in support of a covert operation designed to understand how criminals transacted and cashed out their proceeds ( for example the takedown of the Silk Road Marketplace, an online black market and the first modern darknet market, as early as 2013).