Inside the Blind Spot of Modern Crypto Crime From the Perspective of Lionsgate Network
Introduction: Blockchain Intelligence Has a Blind Spot
The utilization of blockchain intelligence in combating crypto-related criminal activities has become critical in supplying expositional evidence on crimes committed using crypto. As such, exchanges, regulators, and law enforcement all make extensive use of the tools available to trace transactions, attribute wallets, and analyze networks for use in the recovery of crypto scams and professional crypto recovery services.
Unfortunately, despite the development of advanced blockchain intelligence, organized crypto crime will continue to grow. The reason for this is that the majority of blockchain intelligence systems still primarily rely upon historical transaction data for their analysis, while the most valuable intelligence lies in the victim’s data before or during the commission of the crime and is no longer available after the event, when the victim is in reactive mode, looking for ways to recover from the scam.
At the Lionsgate Network, we learned one of the most important lessons in understanding crypto crime: you cannot have a thorough understanding of crypto crime without obtaining victim intelligence, which is critical to strengthening both the strategies for crypto scam recovery as well as the overall effectiveness of today’s professional crypto recovery services.
What Is Victim Intelligence and Why It Matters
Intelligence from victimized individuals is not based on personal experiences; instead, it consists of organized, replicable, and forecastable details from actual people who have been victims of current fraudulent activities.
Over the last couple of years, Lionsgate Network has spoken to and looked into over 6,000 individuals who were victims of cryptocurrency-related financial loss, not through surveys or research, but rather in most cases while victims were still in contact with their infringers.
Every case gives information that a blockchain does not provide regarding:
- How the fraud started.
- What stories were created?
- When they started using cryptocurrency.
- Which wallet was created?
- When the threat of pressure grew to level 1.
- When money was laundered.
This data also discloses how the personal aspect of crime against cryptocurrency is the area that almost all cryptocurrency-based systems are unable to ascertain.
The Hidden Architecture of Crypto Crime
Many crypto scams are run by fraud organizations rather than individual fraudsters. We routinely see:
- Well-organized fraud networks
- Distinct roles in the fraud enterprise
- Use of similar infrastructure across frauds
- Coordination between countries
- Connections to large organized crime syndicates
Blockchain data shows how the money moved. Victim intelligence shows how the fraud worked, thereby providing context to the blockchain data. Without the context provided through victim intelligence, blockchain intelligence does not paint the complete picture.
The Critical Moment Criminals Can’t Avoid
In all forms of crypto fraud, there is one critical point where perpetrators cannot get rid of it, that is, the requirement to furnish victims with a crypto wallet address. Thus, the Achilles heel of all organized crypto crime.
The reason this is important is that
- Usually, per operation, criminals tend to use the same small set of wallets.
- For the most part, these wallets are not used at the same time for other victims.
- Wallets are provided before the laundering has been completed.
- Victims will normally have received several different wallet addresses over time (on average, 3-9 per victim).
Creating a perfect opportunity stands between
- Obtaining the wallet
- Being able to identify Wallet Clusters
- Being able to identify laundering pathways
- Mapping out the associated infrastructure
- Flagging Exchange Touchpoints
- Intervening before the dispersion of funds is complete.
However, the opportunity is only available if someone is listening to the victim in real time.
Why Traditional Blockchain Intelligence Misses This Window
The majority of blockchain intelligence platforms use:
- Reports from exchanges
- Data from events occurring after incidents
- Wallets labeled with historical data
- Public sanctions
Data from events that have made the blockchain public
When data is visible to us, most of the time, the money has already been laundered.
When we receive victim intelligence, it reverses the timeline.
Rather than being able to look at what has already happened, we can look to see what will happen.
These are two drastically different ways to identify and prevent future activity.
- Post-incident investigation
- Proactive prevention
What 6,000 Victims Taught Us About Crypto Fraud
We have conducted thousands of interviews and found recurring themes across all types of scams.
- Romance Scams
- Investment Grooming
- Pig Butchering
- Fake Recruiters
- AI-Generated Impersonation Scams
Although the stories differ, the mechanics of crypto used in the scam are very similar.
The biggest thing to take away from these scams:
- Very few of the victims involved in these types of scams had any history with crypto.
- Crypto is often introduced to the victim at the end of the manipulation.
- The victims are led to believe that their crypto wallet is “temporary,” “secure,” or “verified.”
- Pressure will escalate immediately after the victim has received their wallet.
- The scammer will quickly remove the victim’s funds from their wallet once trust has been established.
Based on these patterns, there is a good opportunity for predictive risk modeling if victim data can be captured.
The Missing Link Between Blockchain Intelligence and Prevention
Attribution work through blockchain intelligence excels post-harm.
Intervention works through victim intelligence and gets ahead of the harming process.
Working together, they create a closed loop of intelligence:
- Reports from victims produce early warnings.
- Wallets that receive stolen funds will be captured before the funds can be laundered.
- Analysis of the blockchain tracks the movement of stolen funds.
- Behavioral patterns are fed back into the detection systems.
- Future victims will not be harmed.
Without the first step, the loop will never be closed.
Why Organized Crime Fears Early Exposure
Fraud rings are built upon three presuppositions:
- Victims will delay reporting crimes.
- Law enforcement will take time to respond.
- The laundering of illegal proceeds will be complete before law enforcement can intervene.
Timely victim intelligence information negates each of these presuppositions. When victims provide actionable intelligence earlier to law enforcement, investigators have the maximum opportunity to disrupt fraud at the time criminals are at their most vulnerable and have not yet fragmented their illicit proceeds.
Therefore, timely victim reporting creates a predictable chain reaction that includes:
- Abandonment of wallets
- Accelerated laundering
- Change to the infrastructure used to perpetuate fraud
- Operational errors by criminals
Pressure that reveals the structure of the fraud organization.
How Lionsgate Network Uses Victim Intelligence
Lionsgate Network has incorporated victim intelligence into its blockchain forensics process in several ways.
- Conducting formalized interviews with victims
- Recording wallet information that is captured through active fraud
- Correlating wallet address information across various cases
- Associating identified repeat infrastructure
- Providing law enforcement with evidentiary-quality reports to support investigations
- Supplying existing preventative engines with signals of real-world fraud
This is not theoretical research or testing; this is actual investigative intelligence created from actual live crime events.
From Recovery to Prevention
Recovery is important; however, prevention makes a difference across the board.
Victim Intelligence is the connection between the two.
It changes the way we look at intelligence on the blockchain, using intelligence and blockchain data to not just report on organized crime but stop it before it happens, illuminating the criminal activity prior to an offence taking place.
Conclusion: Blockchain Intelligence Needs Human Context
The transparency of blockchains is one of their greatest strengths.
Criminals will always be one step ahead and find a way around it.
The victim leaves behind a signal.
Victim intelligence allows the industry to provide blockchain intelligence that arrives early enough to prevent many of the reputational and financial impacts on the victims of crimes.
Victim intelligence allows all aspects of the victim to be analyzed and for effective methods of preventing the same victimization from happening again to be developed.
That is the future of crypto security.
