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February 13, 2022 09:17 pm

Does a $3.6B Bitcoin Seizure Prove How Hard It Is to Launder Crypto?

What's the lesson after $3.6 billion in stolen bitcoin was seized by America's Justice Department from the couple who laundering it? Wired argues it all just shows how hard it is to launder cryptocurrency:In the 24 hours since, the cybersecurity world has ruthlessly mocked their operational security screwups: Lichtenstein allegedly stored many of the private keys controlling those funds in a cloud-storage wallet that made them easy to seize, and Morgan flaunted her "self-made" wealth in a series of cringe-inducing rap videos on YouTube and Forbes columns. But those gaffes have obscured the remarkable number of multi-layered technical measures that prosecutors say the couple did use to try to dead-end the trail for anyone following their money. Even more remarkable, perhaps, is that federal agents, led by IRS Criminal Investigations, managed to defeat those alleged attempts at financial anonymity on the way to recouping $3.6 billion of stolen cryptocurrency. In doing so, they demonstrated just how advanced cryptocurrency tracing has become — potentially even for coins once believed to be practically untraceable. Ari Redbord, the head of legal and government affairs for TRM Labs, a cryptocurrency tracing and forensics firm...points to the couple's alleged use of "chain-hopping" — transferring funds from one cryptocurrency to another to make them more difficult to follow — including exchanging bitcoins for "privacy coins" like monero and dash, both designed to foil blockchain analysis. Court documents say the couple also allegedly moved their money through the Alphabay dark web market — the biggest of its kind at the time — in an attempt to stymie detectives....Lichtenstein and Morgan appear to have intended to use Alphabay as a "mixer" or "tumbler," a cryptocurrency service that takes in a user's coins and returns different ones to prevent blockchain tracing.... In July 2017, however — six months after the IRS says Lichtenstein moved a portion of the Bitfinex coins into AlphaBay wallets — the FBI, DEA, and Thai police arrested AlphaBay's administrator and seized its server in a data center in Lithuania. That server seizure isn't mentioned in the IRS's statement of facts. But the data on that server likely would have allowed investigators to reconstruct the movement of funds through AlphaBay's wallets and identify Lichtenstein's withdrawals to pick up their trail again, says Tom Robinson, a cofounder of the cryptocurrency tracing firm Elliptic. The arrests and "largest financial seizure ever show that cryptocurrency is not a safe haven for criminals..." Deputy Attorney General Lisa O. Monaco said in a press release. "Thanks to the meticulous work of law enforcement, the department once again showed how it can and will follow the money, no matter what form it takes." Or, as Wired puts it, "Even if your rap videos and sloppy cloud storage accounts don't get you caught, your clever laundering tricks may still not save you from the ever-evolving sophistication of law enforcement's crypto-tracers."

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