Crypto Scams on the Rise: Law Enforcement Struggles to Keep Up

As cryptocurrencies continue to gain mainstream adoption, instances of crypto-related fraud and scams have skyrocketed. According to the Federal Trade Commission (FTC), consumers reported losing over $1.6 billion to crypto scams between January 2021 and March 2023 – a staggering 12-fold increase compared to the same period in 2020-2021.

The decentralized and anonymous nature of cryptocurrencies presents immense challenges for law enforcement agencies attempting to track down perpetrators and recover stolen funds. In this regard, the FBI’s IC3 annual report found that in 2023 alone, victims lost over $4.5 billion to just investment fraud and romance scams involving cryptocurrencies.

Victims Face Uphill Battle

For those falling prey to crypto scams, securing assistance from law enforcement agencies to recover their funds has remained an uphill battle. Most agencies — even in the most developed nations — continue to grapple with insufficient resources, expertise, and jurisdictional limitations to effectively investigate crypto crimes that can transcend international borders.
For instance, late last year, a Canadian citizen lost $250,000 after her elderly mother was targeted in a crypto recovery scam. She found that even after filing a police report, little progressive action was taken, with the local police telling her:

“The police are just so overwhelmed, and they admitted they don’t have the resources or training to properly investigate crypto fraud.”

Similarly, in the United Kingdom, a fraud victim had $46,000 worth of Bitcoin and other cryptocurrencies stolen by scammers pretending to be representatives of hardware wallet firm Ledger. Despite successfully tracing the funds to the centralized crypto gambling platform Roobet, the UK’s National Fraud Intelligence Bureau failed to take action to freeze the funds, informing the victim that even after weeks, “it had not been possible to identify a line of inquiry.”
To put things into greater perspective, a recent report found that the U.K. police force was providing “inconsistent” policing of fraud claims — especially those related to digital assets. Another subsequent study claimed that fraud cases only received 2% of the UK’s total police funding, even though they made up 40% of all transgressions.

More Than a Silver Lining

While law enforcement agencies struggle to keep up with the rising tide of crypto crime, the past couple of years have witnessed a number of innovative companies exploring new techniques to assist victims in recovering stolen crypto funds.
One such technique entails the detailed analysis of a given blockchain, wherein specialists scrutinize its distributed ledger to trace the flow of cryptocurrencies from scammers’ wallets to exchanges or platforms where funds may be temporarily stored. This data can potentially compel these entities to freeze accounts tied to illicit activity.
Another approach is crypto asset tracing, which uses advanced analysis of transaction patterns and wallet behaviors to unmask the real-world identities behind crypto wallet addresses involved in theft or scams. With identities and fund locations established, legal outreach can then bring pressure on centralized exchanges (CEX) or services to freeze and eventually return stolen assets to victims through court orders.
This combination of blockchain forensics and legal maneuvering has exhibited a high degree of success in recent months. For example, in late 2023, Israeli blockchain analysis firm Lionsgate Network assisted in the identification and freezing of around $90 million in crypto assets belonging to the Hamas terrorist group as part of a government counterterrorism operation.
Since the company’s launch in 2022, Lionsgate has continued to offer a wide array of specialized crypto recovery services to individuals and businesses victimized by fraud, hacks, or theft involving cryptocurrencies. The firm’s core offerings include real-time blockchain monitoring, on-chain forensics, identity tracing using open-source intelligence, international legal support, and settlement negotiation services.

Commenting on Lionsgate’s USP, CEO Bezalel Eithan Raviv was recently quoted as saying: “The biggest problem victims face is that law enforcement is often two steps behind crypto crooks. Our solutions aim to bypass traditional enforcement by working directly with exchanges and wallet platforms to rapidly freeze funds.”

A Holistic Approach

While new blockchain analysis techniques definitely show promise, they are not a silver bullet solution. Raviv believes that it is imperative that security firms adopt a more holistic approach — one that combines technology, legal actions, law enforcement cooperation, and ongoing efforts — to raise consumer awareness.

 “It’s literally only the beginning. There’s a long way to go for Web3 to reach the maturity and security levels necessary for sustained long-term adoption,” he believes.

Therefore, as cryptocurrencies continue to revolutionize the realm of digital finance, parallel innovations in security and asset recovery stand to be crucial for protecting participants and ensuring the industry’s integrity. While an uphill battle ensues, it will undoubtedly be an interesting one.

If you’ve been affected by a crypto scam, you are entitled to a case evaluation.

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