DoJ’s crypto czar joins FinCEN in brand-new role: Why it matters

DoJ’s crypto czar joins FinCEN in brand-new role: Why it matters

In her monthly Expert Take column, Selva Ozelli, an international tax attorney and CPA, covers the intersection between emerging technologies and sustainability, and provides the latest developments around taxes, AML/CFT regulations and legal issues affecting crypto and blockchain.

Talk about ending a stellar career at the United States Department of Justice with a bang. The DoJ’s first-ever “crypto czar,” Michele Korver, advised government attorneys, federal agents, the Department of the Treasury’s Financial Stability Oversight Council and the U.S. delegation to the Financial Action Task Force on cryptocurrency matters, and she developed cryptocurrency seizure and forfeiture policy and legislation. While she was wrapping up her last day on the job, an affiliate of the notorious “REvil” gang, which is best known for extorting $11 million in Bitcoin (BTC) from meat processor JBS after an attack on Memorial Day, executed the single biggest global ransomware attack on record to kick off the July 4 holiday weekend.

Our top trading bots

Related: Meet DoJ’s Crypto Czar: Expert take

REvil’s supply chain-targeted ransomware attack successfully spread malware to thousands of businesses in at least 17 countries that outsourced their IT department to Kaseya, a privately held company based in Dublin, Ireland. It did so in one fell swoop, thanks to Kaseya’s compromised IT management software, VSA — resulting in a $70 million payday in Monero (XMR). If REvil is successful, they could perform a second attack on the businesses that chose to pay the Mondero demand. According to a recent report by Cybereason titled “Ransomware: The True Cost to Business,” 80% of businesses that choose to pay a ransomware demand are targeted a second time. REvil could then turn around and launder the illicit proceeds on dark web markets, as outlined in a report issued by Flashpoint and Chainalysis.

Related: Are cryptocurrency ransom payments tax-deductible?

Criminals prefer using cryptocurrency tumblers/mixing services or privacy coins like Monero when paying for illicit goods and services in order to obscure the trail back to the fund’s original source, points out Korver, who co-authored an article titled “Surfing the First Wave of Cryptocurrency Money Laundering” in a journal issued by the DoJ. As she writes:

“Criminals follow common paths when placing, layering, and integrating their ill-gotten cryptocurrency. Those paths go through several primary domains, including institutional exchanges, P2P exchangers, mixing and tumbling services, and traditional banks. [...] Some of these primary domains, such as P2P exchangers and mixing services, appear to more directly cater to criminals in need of laundering cryptocurrency.”

For example, Korver explains: “To first possess cryptocurrency, criminals [including cyberattackers and ransom demanders] must set up wallets. Those wallets might be under their exclusive control [un-hosted wallets], or they might be custodial wallets hosted by a third-party service provider, such as an institutional exchange. Once in a wallet, funds can be sent to mixing services or gambling sites to obscure their historical trail. From there, the funds can be converted to fiat currency through exchanges, P2P exchangers, or kiosks. Sometimes, the funds will then be sent to bank accounts or cryptocurrency debit cards where they can be used to buy things or pay off debts. While this is the typical way in which the primary domains appear in the PLI process, criminals can use the domains in almost any way they want: Wallets can be used to mix funds; P2P exchangers can be used to integrate the funds; and kiosks can be used for layering. Criminals can also repeat the steps of the PLI process to further obfuscate the origin of the ill-gotten funds, though they incur additional costs and risk every time they repeat the cycle.”

Related: The United States updates its crypto AML/CFT laws

In the context of ransomware payments, the number of which has increased by around 500% since the onset of the COVID-19 pandemic, Korver goes on to say that “Victims of ransomware attacks have relied on P2P exchangers. With the rise of ransomware as a standardized criminal enterprise, an increasing number of victims have been forced to purchase cryptocurrency in short order. It has been estimated that 9% of Bitcoin transactions are attributable to ransomware or some other form of cyber extortion payment. If it takes days or weeks to open a validated account at an institutional exchange, a P2P exchanger can offer cryptocurrency at a moment’s notice, and victims are willing to pay this speed premium. Victims have noted that ‘the processing times [at a registered institutional exchange] were far beyond the scope of the immediacy posed by the ransom’ and that a P2P exchanger was a better option for obtaining cryptocurrency in a hurry.”

Prior to Korver’s arrival at the Financial Crimes Enforcement Network, FinCEN authorities proposed a rule taking aim at transactions involving unhosted cryptocurrency wallets, which are generally software installed on a computer, phone or other device. The cryptocurrency in an unhosted wallet are controlled by an individual, who can receive, send and exchange their crypto assets person-to-person with other unhosted wallets, or on an exchange platform, without revealing their identity — making it more difficult to trace and scrutinize transactions for Anti-Money Laundering and Counter-Terrorist Financing compliance risks.

Related: Authorities are looking to close the gap on unhosted wallets

These concerns are shared by the Financial Action Task Force (FATF), the intergovernmental body responsible for setting AML standards. The updates proposed by the FAFT to its 2019 guidance expand the definition of a Virtual Asset Service Provider (VASP) to include several noncustodial cryptocurrency businesses, meaning they will be subject to AML/CFT regulations. Peer-to-peer decentralized exchanges/structures (except for rules that apply to all entities, like targeted financial sanctions) remain under review.

As cryptocurrencies — along with ransomware attacks — become more mainstream, Korver will advance FinCEN’s leadership role in the digital currency space by working across internal and external partners to bring forward strategic and innovative solutions to prevent and mitigate illicit financial practices and exploitation.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Selva Ozelli, Esq., CPA, is an international tax attorney and certified public accountant who frequently writes about tax, legal and accounting issues for Tax Notes, Bloomberg BNA, other publications and the OECD.
Keep reading on Cointelegraph
NFT animation 'Stoner Cats' preps for launch following delay
A cat-themed animated series, featuring prominent entertainers and personalities from the crypto space, is reportedly back on schedule after an unexpected...
China is pumping money out of the US with Bitcoin
The ongoing United States-China trade war is in its fourth year. Former U.S. President Donald Trump saw different results from what he initially expected:...
Pro basketball league in Canada will offer players Bitcoin salaries
The Canadian Elite Basketball League will be allowing players from its seven teams to accept a portion of their salaries in Bitcoin starting next week. According...
Tanzanian president urges central bank to prepare for crypto
Tanzania appears to be the latest emerging economy poised to embrace Bitcoin and crypto assets.On June 14, Tanzanian president Samia Suluhu Hassan urged...
Reports suggest BlockFi seeks to raise millions at a valuation of $5B
Cryptocurrency lending platform BlockFi is reportedly looking to raise hundreds of millions of dollars in new funding at a valuation of nearly $5 billion,...
Lawmakers should treat crypto like gold or real estate: Indian tech magnate
Indian technology mogul, Nandan Nilekani, has urged local lawmakers to allow citizens to speculate on crypto assets.The co-founder and chair of Infosys,...
Cardano Climbs 10% In a Green Day
Investing.com - Cardano was trading at $1.798745 by 20:43 (00:43 GMT) on the Investing.com Index on Wednesday, up 10.07% on the day. It was the largest...
Finance Redefined: Puff, puff, pump on 4/20! April 16-21st
Loyal Finance Redefined readers:Hi, I’m Andrew. My inestimable colleague Andrey, the previous compiler of this newsletter, is stepping away from Cointelegraph...
Upbit investor stock price surges three-fold amid bullish crypto trading in South Korea
The effects of South Korea’s crypto frenzy seem to be spreading beyond the cryptocurrency market to affect stock prices in the country’s stock exchange.According...
Cardano Climbs 10% In Bullish Trade
Investing.com - Cardano was trading at $1.233727 by 07:29 (11:29 GMT) on the Investing.com Index on Friday, up 10.38% on the day. It was the largest one-day...
Actionists reinventing art: As it ever was, so shall it ever be (even in crypto)
Art trumps money. Always. It is important to remember this amid the current crypto art hype. Nonfungible tokens have given digital art the benefit of provable...
What is a Security Token?
Security tokens became very popular, but do you really know what is STO?STO is Security Token Offering, which is identical to an ICO. In this, there are...
Bitcoin Gets Wider Adoption As a Payment Option: How?
Some experts believe that bitcoin and other cryptos are not cut out for being used as public currencies for carrying out daily purchases. For instance,...
New Survey Shows That Amazon Could Take On Cryptos and Banks
While some argue whether blockchain will be able to replace such retail titans as Amazon or eBay, lots of people support the idea of “Amazon-coin” creation....
The Board Of Directors And The President Of Tezos Foundation Changed
Two members of the board of the Tezos Foundation, including its president, Johann Gevers, voluntarily resigned.They will be replaced by a member of the...