Federal agencies have joined forces to combat crimes involving cryptocurrencies in Arizona after seeing an increase in digital transactions related to narcotics, firearms, and other illicit activity.
On June 15, Homeland Security Investigations in Arizona and representatives from four other federal agencies signed a memorandum of understanding to establish the “Darknet Marketplace and Digital Currency Crimes Task Force,” according to a June 20 press release by U.S. Immigration and Customs Enforcement.
The other agencies who signed the agreement are the IRS, U.S. Drug Enforcement Administration, U.S. Postal Inspection Service, and the U.S. Attorney for the District of Arizona.
Over the past several years, federal agencies have seen an increase in the use of the internet to facilitate illegal transactions involving narcotics, personal information, firearms, and other contraband, the report said, adding that the use of digital currency to facilitate these transactions has also risen.
The task force aims to “disrupt and dismantle criminal organizations that exploit the appearance of anonymity on the darknet or use digital currency to facilitate criminal activities, such as drug trafficking, money laundering, theft of personal information, and child exploitation.”
The new task force is expected to serve the needs of Arizona.
Illicit Crypto Activity
According to a February 2023 report by forensic cryptocurrency firm Chainalysis (pdf), the illicit transaction volume in the cryptocurrency market rose to $20.6 billion in 2022 from $18.1 billion in 2021 and $8.4 billion in 2020.The share of illicit activity in the overall cryptocurrency activity stood at 0.24 percent. Although this is the second-lowest number in six years, it is up from 0.12 percent in 2021.
Darknet markets and fraud shops made an estimated $1.5 billion in 2022, down from $3.1 billion in 2021, the report said. The reason for the drop is attributed to the shutdown of Hydra Market, a leading darknet marketplace.
“Hydra’s closure prompted a sector-wide decline in darknet market revenues, with average daily revenue for all markets falling from $4.2 million just prior to its closure and to $447,000 immediately after. While drug markets’ collective revenue hasn’t recovered fully, it climbed slowly back toward previous levels in the second half of 2022. Fraud shops, however, have continued to decline,” the report said.
Each American victim is estimated to have lost an average of $86,000 per year due to cryptocurrency scams compared to the average loss of $16,000 per year in scams involving traditional payment methods.
Crypto Use by Sanctioned Entities
The Chainalysis report also pointed out that 43 percent of 2022’s illicit transaction volume came from activity associated with sanctioned entities. It gave the example of cryptocurrency exchange Garantex, which accounted for the majority of the sanctions-related transaction volume last year.The U.S. Office of Foreign Assets Control sanctioned Garantex in April 2022, but “as a Russia-based business, the exchange has been able to continue operating with impunity,” the report said.
“Transactions associated with Garantex or any other sanctioned crypto service represent, at the very least, substantial compliance risk for businesses that are subject to U.S. jurisdiction, including fines and potential criminal charges.”
America’s rivals like China and North Korea also use cryptocurrency for illicit activities. A June 11 report from The Wall Street Journal claimed that North Korea stole more than $3 billion in cryptocurrency and used it to fund about half of its ballistic missile program.
“Elliptic’s blockchain analysis shows that the cryptocurrency wallets used by these [Chinese fentanyl precursor] companies have received thousands of payments, totaling just over $27 million, and that the number of transactions has increased by 450 percent year-on-year,” the study said.
“$27 million would purchase enough precursor to produce fentanyl pills with a street value of approximately $54 billion,” it said.
