Martin Kenney, managing partner
The sums involved in the latest high-profile cryptocurrency fraud are mind-blowing. A self-proclaimed amateur rapper nicknamed the “Crocodile of Wall Street,” Heather Morgan, along with her husband Ilya Lichtenstein, were arrested and charged with conspiracy to allegedly launder $4.5 billion in stolen Bitcoin last month.
Equally astonishing is the success of the U.S. Justice Department in retrieving assets in this case — it has reportedly recovered $3.6 billion of the digital currency after seizing the couple’s digital wallets. While this still leaves approximately $1 billion outstanding, it remains a tremendous feat. One can only hope that the recovery will continue to grow in size as the investigation develops.
The couple, bailed for $8 million between them, are alleged to have laundered huge sums of Bitcoin stolen in a 2016 hack. The hacker, which the DOJ has not claimed was either Morgan or Lichtenstein, targeted a coin exchange called Bitfinex, stealing 119,754 bitcoins. The theft was so significant that it knocked 20% off the value of Bitcoin after the news of the hack broke.
Equally staggering is the value of hack—originally around $71 million—which has shot up in a comparatively short number of years, owing to the volatile upward growth in Bitcoin’s value. The fact that the U.S. authorities were able to track the Bitcoin movements here is testament that digital currencies are no longer the opaque tender they once were, which gives asset recovery specialists cause for hope as we move forward.
Deputy Attorney General Lisa Monaco said of the events, “Today’s arrests, and the Department’s largest financial seizure ever, show that cryptocurrency is not a safe haven for criminals.”
Comments by U.S. Attorney Matthew M. Graves for the District of Columbia were particularly interesting, illustrating a change in position by the authorities toward digital currencies. Graves said that such thefts as those alleged by Lichtenstein and Morgan “could undermine confidence in cryptocurrency.” The underlying message appears to signal a seismic shift in attitude toward digital currencies — from representing all that is wrong with the world of money laundering to a point where U.S. officials are concerned about digital currency platforms being damaged by hacks.
Digital currencies are becoming increasingly common. Companies such as Tesla now accept certain digital currencies as a form of payment (in this case Dogecoin, which can be used to buy Tesla merchandise). As their popularity grows, those who once robbed banks will likely swap their shotguns and masks for computers and high-powered servers to enact their crimes.
As they do, those who track assets are already penetrating the layers by which such crooks seek to hide their loot. “Chain Hopping” — the process of moving and shifting digital currency in an attempt to befuddle those seeking to follow money laundering chains — is no different notionally than the placing, layering and integration that anti-money laundering specialists are familiar with. Fortunately, it is possible to track digital currency movements, with outfits such as Chainalysis and other experts now leading the way in the field.
The investigators involved in the Lichtenstein/Morgan case should be congratulated for their efforts. If their suspicions are proven to be correct, the couple’s prosecution will serve as a deterrent to others of a similar ilk. The recovery of the billions of dollars in value sends a further message: If you are going to commit such crimes, not only will you stand to lose your liberty, but your ill-gotten gains can and will be targeted too.
Crime must not pay, and our best weapon against crime is having meaningful deterrents that can be employed by those with the skills and determination to implement them, including confiscation of wealth.
SOURCE: ACFE Insights – A Publication of the Association of Certified Fraud Examiners