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Know How Cryptocurrencies Became New Favourite For Money Laundering And Other Illegal Transactions



Know How Cryptocurrencies Became New Favourite For Money Laundering And Other Illegal Transactions

Now a days there seem to utter craze about Cyrptocurrency like Bitcoins, Ethereum etc. Everyone wants to own some piece of this Virtual Currency.

Bitcoin was launched sometime back in October 2008 by a researcher or group of researchers who go by the name Satoshi Nakamoto. Actual identity is still debatable. Enough information is available on Internet about him/Bitcoin.

Now here comes the interesting part: The launch timing of Bitcoin coincided with the Sub-prime lending crisis in 2008, where whole world’s economy shattered. Around September 15 2008, Lehman Brother’s filed for Bankruptcy. Enough media coverage had been done about the financial depression.

Within less than a month around mid October 2008, the cryptocurrency was launched in the form of Bitcoin (probably first one to become famous in public domain). Was it just a co-incidence? Researchers from “Other world” disagree.

Unaccounted money and management of the same had been prevailing since ages. With Financial systems failing across the world, with so much of money at stake, a different system was a must and probably at that time Cryptocurrency was the safest bet, keeping the prevailing technology in mind.

During initial days, purchase process using Bitcoin was so secure that it wasn’t possible to hack the system. Only a money transfer could be seen, but nothing can be known about the sender and the recipient.

Fast forward to Indian Context: Bitcoins gained prominence in India in 2016. Earlier than that it was restricted to elite circle of population. When Prime Minister of India Narendra Modi announced demonetisation on November 8, Bitcoin price was $757.

During initial days post demonetisation, it hovered around $860-$898. Before this the price of Bitcoin was hovering around $755. It reached $1,020 in just 18 days after Prime Minister Narendra Modi announced demonetisation on November 8, 2016. The Bitcoin was valued at around $770 in the US the same day.

This clearly indicates the unaccounted money from businessmen, politicians, had been shifted to this digital currency platform. Within 6 months timeframe the Bitcoin price got just doubled e.g on May 27, 2017 the price of Bitcoin in India shot up to $2096.98. There has been a clear surge in Bitcoin transactions after demonetisation.

How Does the Laundering Work: A very simple example

1,000 bitcoins = $33M in US Dollar = Rs 220Cr in INR

“LM” is in US

“DK” is in UK

“JM” is in China

“MB” is in India

LM pays cash (dirty money) in US$ to buy bitcoins from DK

DK pays cash (dirty money) in Euro to buy bitcoins from JM

JM pays cash (dirty money) in Yen to buy bitcoins from MB

MB pays cash (dirty money) in INR to buy bitcoins from LM

Its apparent, with the method, a group can not only artificially inflate the price of Bitcoins but also launder dirty money from multiple currencies. We have already seen this in real estate sector, how pricing had been jacked up using this methodology.

Bitcoin may be able to trace the IP of transacting computer, but frankly, it’s of no use as to circumvent these Benami Rackets are in place. Additionally considering that international transactions would be involved, how can the criminals be found and convicted? Which country would have jurisdiction to convict?

There are, of course, other factors to consider in this “money-laundering” scheme e.g how to mitigate the limit of US$10K imposed by US Bitcoin exchange regulators, which we have kept outside of scope for this article.

Shifting from Bitcoin to other Cryptocurrencies:  With adaption of advanced technology, now even Law Enforcement Agencies & Financial Institutions have also upgraded themselves with inputs from the experts in these field. Recently in one of the Ransomware case of Colonial Pipeline attack, FBI had been able to recover almost half of the amount, approx. $2.4M paid through Bitcoin from Darkside group & additionally they were able to constifcate their digital wallet as well. In one of our earlier report we had demonstrated how we could track & trace the wallet of one of the hacker & his main operator.

Acknowledging these loopholes, now cyber criminals, hacker Operators, high profile businessman, White collared criminals, have shifted to different type of Cryptocurrency beyond Bitcoin/Ethereum, known as privacy coins like Moreno, Grin & Zcash etc. These Virtual currencies offer more privacy &  currently its very difficult to track & trace them.

In Part 2 we shall try to decode:

  • How this money gets back into system with white tag status.
  • Why Moreno, Grin, Zcash types of virtual currencies are darling for Money Launderers.
  • Cat-n-Mouse games between AML (Anti Money Laundering) framework and Cyber Criminals.

Case Study by: RED Team of Armantec, led by Shamsher Bahadur – Cyber Security Practice Head.

This Article has been Submitted by Armantec Systems Pvt Ltd (, a Noida Based Threat Intelligence & RED Teaming Consulting Firm, with the prime focus on custom Ransomware Attacks Solution for Critical Information Infrastructures (CIIs).

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