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Q&A: How crypto market intelligence prevents governmental and institutional fraud and crime

he world of cryptocurrency can be confusing and overwhelming for the average person. It may seem like a place of unregulated speculation…

Bitcoins. — © AFP
Bitcoins. — © AFP

Crypto market intelligence and surveillance will be an upfront priority for government agencies and financial institutions to detect fraud and crime globally. As such, virtually all government regulators are looking to implement cutting-edge market surveillance systems to support their efforts to monitor illicit activity on blockchain, from the ECB and Singapore to the US.

Navin Gupta, CEO of Crystal, looks into these matters with Digital Journal. Gupta discussed the role market intelligence and surveillance plays in combating financial crimes for these entities.

Digital Journal:  How can investigations and compliance programs aid governments in detecting and preventing financial crimes in the cryptocurrency space?

Navin Gupta: The world of cryptocurrency can be confusing and overwhelming for the average person. It may seem like a place of unregulated speculation and shady dealings, where money can disappear without a trace. However, this is not entirely true. And it is the place of companies like Crystal and other industry firms to dispel such myths. Blockchain technology provides a transparent and traceable ledger which makes it difficult for any potential fraudster to operate.

Despite this, there are still ongoing issues with Ponzi schemes, ransomware attacks and hacking, which governments must tackle. The scale of the problem remains significant with Crystal reporting that even though the number of ransomware payments decreased to $16 million in 2022 from $74 million the previous year, there was an increase in attacks. So what is the solution? The key is gaining insights, intelligence, and education.

By understanding how blockchain works, following the digital breadcrumbs, and staying informed, governments can stay one step ahead of these financial crimes. It’s like having a torch in a dark room; suddenly, you can see what’s what. Market surveillance and intelligence companies are also helping to reveal these issues, making it more difficult for criminals to continue their illegal activities.

DJ: In what ways does investigation and compliance tools help ensure national security concerns related to cryptocurrencies are addressed?

Gupta: There are organized groups that steal millions of dollars from corporations. You may have heard of groups like the North Korea-linked hacker Lazarus Group – which, it has been reported has stolen $3 billion in cryptocurrency over the past six years, according to a report by cybersecurity firm Recorded Future. They not only steal fiat currencies, but also manipulate crypto prices to launder the stolen money. This poses a significant security crisis for governments. Therefore, it is crucial to have risk monitoring and compliance tools in place to provide governments with the necessary intelligence to investigate such scams.

DJ: How can institutions leverage technology to enhance transparency and accountability in digital asset transactions?

Gupta: Blockchain tools are not just about the technology. It’s about response time to real-time incidents and how technology delivers that response. For instance, the recent WooFi hack is a concrete example. Within just 11 minutes of the incident, we updated our data labels. This implies that all our clients were notified of the hack and had access to information to safeguard themselves. Such a rapid response time is not feasible in many industries across the world.

Thus, exchanges and banks need trusted partners with the technology that they can rely on to monitor transactions and to perform screenings while creating visualizations so they can see where things are developing. These surveillance systems also monitor the markets and incidents and hacks to be able to quickly alert their customers so they can manage their risk.

DJ: What role does market intelligence play in helping governments adapt to the evolving regulatory landscape of cryptocurrencies?

Gupta: The entire point of having robust regulations is to protect consumers. As an example, Markets in Crypto-Assets Regulation (MiCA) institutes uniform EU market rules for crypto-assets. The regulation covers crypto-assets that are not currently regulated by existing financial services legislation. MiCA prohibits reversible solicitation.

Through the guiding principles of MiCA, market intelligence provides information about what’s going on regarding typologies and so forth, which can be used to educate regulators. Education is an important piece. Blockchain intelligence experts have strong relationships with regulators to train them and teach them how to use and read transactions on the blockchain. They also assist with training to promote education and awareness of potential threats.

If regulators possess information about criminal behaviour, new trends in activities, and the types of hacks and scams being used, they can make informed decisions about the regulations that need to be implemented. This way, they have a better understanding and can consider what rules should be in place 5 to 10 years down the line.

Europol and Interpol have strongly benefited from shared market intelligence. It is important to note, within Europe, organizations such as the OSCE/UNODC have robust training programs that Crystal has had the opportunity to run for regulators. We know governments in Jordan, Georgia and Armenia have been very interested as well into these programs. Lastly, best practices need to be instituted and industry organizations such as the DACC are promoting what they are doing on a global scale.

DJ: How can investigations and compliance systems assist in tracking the flow of digital assets across borders to prevent money laundering and terrorism financing?

Gupta: Digital assets, like cryptocurrency, present both incredible opportunities and significant challenges, particularly when it comes to illicit activities such as money laundering and terrorism financing. Investigations and compliance systems are critical in this landscape.

First off, let’s talk compliance systems. They are the guardrails that help keep digital asset transactions within the bounds of the law. They require exchanges and other digital asset service providers to implement Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures. This means they must verify who their customers are and understand their financial behaviours. Compliance systems are like the bouncers at the club door, checking IDs before letting anyone in.

On the investigations side, these deep dives occur when something looks off. If a compliance system flags a series of transactions as unusual, an investigation might kick off to trace where the money is going and where it came from. Investigations in the digital asset space often use blockchain analytics tools. These tools can follow the money through the blockchain, seeing where it hops across accounts and borders. It’s like having a GPS tracker on every digital dollar.

Together, these systems prevent fraudsters from using digital assets for nefarious purposes.

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Written By

Dr. Tim Sandle is Digital Journal's Editor-at-Large for science news. Tim specializes in science, technology, environmental, business, and health journalism. He is additionally a practising microbiologist; and an author. He is also interested in history, politics and current affairs.

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