The importance of investigations solutions for crypto service providers

Scott Pounder, Head of Investigations at Crystal Blockchain, explains the importance of having an Investigation-as-a-Service solution if you are a bank, FI, or crypto service provider

The total market cap of all cryptocurrencies is now well above USD 2 trillion. Retail investors are flooding into the space, as are financial institutions.

With so much money flowing into the industry, and first impressions to be made, the stakes are high. But the rise of exciting use cases has been matched by a surge in opportunistic criminals who are using crypto to engage in fraud, money laundering, and extortion.

All of this powerfully illustrates why crypto investigation services are so important. The sophistication and depth of blockchain intelligence services has improved immeasurably over recent years — offering a layer of protection for all firms, whether they’re involved in digital assets or not.

Companies crippled by cyberattacks are regularly hitting the headlines. The world’s largest meat company saw its US plants grind to a halt, while the Colonial Pipeline had to shut down its operations — triggering gas shortages.

These high-profile incidents have encouraged other businesses to review their business practices, adding layers of protection in the hope their operations won’t suffer a similar fate.

Meanwhile, Crystal Blockchain is making it harder for cybercrime gangs to profit. Should a ransom be paid, our company can track what happens to this crypto — scrutinising blockchain records to determine where funds ended up and making it harder for criminals to launder them.

Such threats mean that it’s more important than ever for virtual asset service providers, banks, and financial institutions to achieve compliance. They need detailed data at their fingertips, so they know who they are dealing with. We offer risk scores to ensure these organisations can minimise the risk of coming into contact with tainted funds. The 6th Anti-Money Laundering Directive and guidelines from the Financial Action Task Force clearly sets out what’s expected of these institutions.

Fighting crime in a modern world

Countries across the globe are reporting sharp rises in the number of reported crypto frauds. Figures from Pinsent Masons suggest there were 8,614 such incidents in the UK in the year to 30 June 2021. Not only is this a rise of 116% from the year before, but it’s the fourth year in a row that cases have doubled.

In the US, the Federal Trade Commission says losses between October 2020 and March 2021 stood at USD 80 million. This total figure is 1,000% higher than the same period 12 months ago. But perhaps the more worrying statistic relates to the fact that median losses are surging too, coming in at USD 1,200.

Whereas there can be some safeguards for those who lose money if fraudsters target their bank accounts or credit cards, far fewer protections exist for crypto investors. An exchange isn’t going to step in to make a consumer whole or offer their support on tracking down stolen funds. This alone underlines how crucial blockchain-based investigation services truly are.

It isn’t just consumers who need support, law enforcement agencies do too. The world of blockchain technology and cryptocurrencies moves quickly, and many organisations don’t have the resources or knowhow to perform a meaningful investigation when crime occurs. Things get even more complicated when you factor in how funds can move across multiple networks, and a crime can span several jurisdictions.

Right now, it can take up to one year for a law enforcement agency to receive a response when they file a request to their counterparts in another country. This is ample time for efficient gangs to move stolen assets and launder them, meaning their crimes go punished. Worse still, these groups often know that detectives are behind the curve — emboldening them to act with impunity. Work needs to be done to speed things up on an international level — but the existence of blockchain analytics firms means productive investigations can still be performed.

I have more than 16 years’ experience in law enforcement — and previously worked with the Metropolitan Police. Over my career, I’ve been at the forefront of tackling cybercrime — bringing down websites involved in money laundering, fraud, and scams. Delivering results depends on keeping up to date on ever-changing laws and regulations, maintaining close contacts, and handling high-profile investigation with sensitivity.

I believe that my training and background in traditional policing is of great value when it comes to tackling crypto-related crime. Money laundering, theft and fraud have long existed — the only new things are the technology and assets being used to facilitate them. Tried-and-tested investigative skills, when combined with the intelligence provided from blockchain analytics, truly are a force to be reckoned with.

Existing laws and regulations do ensure that crypto-related crimes can be prosecuted and punished. But modernising them further will take time.

Following the money

With cases on the rise, financial institutions and law enforcement agencies need tools to follow money in the crypto world. Crystal’s visualisation tools allow these organisations to uncover new leads, connect the dots between blockchain transactions and the real world, and reveal the identities connected to pseudonymous blockchain addresses.

As daunting as a blockchain-focused investigation may seem, Crystal can help reduce the time it takes to get answers — and better still, our features enable the facts to be simply distilled and presented to non-technical audiences including courtrooms and executives.

This data can then be used to take action, resulting in legal requests that can compel virtual asset service providers to freeze assets, increasing the likelihood that these stolen funds can then be returned to their rightful owner.

Although it takes time and effort to train law enforcement agencies and financial institutions to embrace blockchain analytics, looking beyond the short term can uncover massive opportunities. Taking action now means a greater level of preparedness to tackle crime in a rapidly growing sector. Not only will an effective response protect consumers, but it can also deter organised crime groups from engaging in illegal activities in the first place.

Just like a robber is less likely to target a bank if there’s state-of-the-art security and CCTV cameras on every corner, gangs are less likely to experience success if their every move is being monitored on the blockchain.

About Scott Pounder

Scott Pounder joins the Crystal Blockchain team as the Head of Investigations with over 16 years of law enforcement experience behind him. In addition to this, Scott has obtained numerous professional qualifications and memberships including a Master’s Level Certification in Advanced Investigative Practice (APCIP). Scott has successfully dealt with high profile and sensitive investigations and has been specialising in Complex Fraud, AML, Cybercrime and Financial Investigations for the last 7 years.

About Crystal

Crystal is the world-leading all-in-one blockchain analytics tool for crypto AML compliance, providing blockchain analytics and crypto transaction monitoring for thousands of cryptocurrencies in real-time.

Crystal Blockchain works globally with customers in the digital asset industry, the banking, and FI sectors. We help streamline their Know Your Transaction (KYT) and Anti-Money Laundering (AML) procedures for meeting international compliance standards.

Available as a free demo version, SaaS, API, and for on-premise installation. Engineered by Bitfury.