UK government report highlights threat posed by digital currencies in cyber crime

Maria Nikolova

Digital currencies play a vital role in laundering the proceeds of cyber-dependent crime, directly facilitating cyber criminal financial flows, according to a report entitled “National risk assessment of money laundering and terrorist financing 2017”.

The UK government has voiced its concerns about the role of digital currencies for enabling cyber crime. These concerns are highlighted in a report entitled “National risk assessment of money laundering and terrorist financing 2017”, published today.

The report refers to the first such assessment, the 2015 NRA, which emphasized that the vulnerabilities were largely around the anonymity and cross-border exposure of digital currencies, as well as the lack of interaction with the regulated sector. The document notes that digital currencies have only become marginally more mainstream since 2015, but the market is diversifying and growing with other currencies (many of which have enhanced anonymity) taking market share from Bitcoin.

The National Crime Agency has assessed the risk of digital currency use for money laundering to be relatively low. Although the Agency believes it is likely that digital currencies are being used to launder low amounts at high volume, there is little evidence of them being used to launder large amounts of money.

By contrast, from a cyber crime perspective, the threat posed by digital currencies is higher, the report says. This is due to the role of digital currencies in directly enabling cyber-dependent crime. This is apparent in three areas:

  1. Digital currencies often facilitate victim payments to cyber criminals. This includes malware attacks such as ransomware, and cyber crimes-as-an-extortion, in which victim ransom payments are predominantly requested to be paid in Bitcoin.
  2. Digital currencies boost the growth of cyber crime-as-a-service. They constitute the primary method of payment for criminal-to-criminal payments and for the purchase of illicit tools or services sold online in the cyber criminal marketplace.
  3. Digital currencies play a vital role in laundering the proceeds of cyber-dependent crime, directly facilitating cyber criminal financial flows.

The report also refers to an analysis of suspicious activity reports (SARs) submitted between May 2016 and July 2017. The analysis shows 1,584 of these reports referred to digital currencies, with the number of reports increasing month-on-month. Of these SARs, a number indicated that the suspicion was raised because of the involvement of digital currencies, rather than any suspicion of money laundering or terrorist financing.

The risks associated with digital currencies are expected to grow as digital currencies become an increasingly viable and popular payment method. As the number of businesses accepting digital currency payments grows, there is a growing risk of criminals using the currencies to launder funds without needing to cash out into non-digital, or ‘fiat’ currencies.

With regard to terrorist financing, the 2015 NRA found that digital currencies are not typically a method with which terrorists move funds in or out of the UK.

The use of digital currencies to buy and sell illicit goods more widely may mean that digital currencies may be used in order to purchase items which could be used in an act of terror (such as firearms) or used to fund an act of terror (such as stolen card details), but there is no evidence of this occurring to date in the UK, the latest NRA says.

Terrorist use of digital currencies is assessed to be unlikely to increase markedly in the next five years.

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