Cryptocurrencies like Bitcoin, Ethereum and Ripple have exploded in popularity in recent years.
You might’ve seen stories in the media of “Bitcoin millionaires,” regular people who rode speculative investments in cryptocurrency to quick riches. That has driven millions of digitally inclined people to try their luck in the crypto markets.
However, the popularity of cryptocurrencies has now attracted the attention of federal agencies like the FBI. The federal government aggressively prosecutes cases of cybercrimes like fraud, wire fraud, securities fraud, computer hacking, money laundering and drug trafficking that involve cryptocurrencies.
If you have been charged with a crime involving cryptocurrency, it is important to speak with an attorney who understands both cryptocurrency and how it relates to federal law.
What is Cryptocurrency?
Cryptocurrency is a digital currency that uses encryption techniques to regulate how much of it can be produced and how it can be transferred from person to person. This means there is no need for a central bank to regulate transactions. It is “decentralized.”
There is a common misperception that cryptocurrency transactions are also anonymous. They are not. More on this later.
Users keep their currencies in digital “wallets.” Cryptocurrencies are traded on open markets (“exchanges”), and some retailers accept them for payments.
Bitcoin (BTC) was launched in 2009 and it is widely considered to be the world’s first decentralized cryptocurrency. Since then, more than 4,000 other “altcoins” have been introduced into circulation, including:
- Ethereum (ETH)
- Ripple (XRP)
- Litecoin (LTC)
- Dash (DASH)
- Zcash (ZEC)
Conservative estimates report that around 35 million people worldwide carry cryptocurrencies.
How Does the Government Treat Cryptocurrency Crimes?
Cryptocurrency is still an extremely new phenomenon, and it is quickly evolving. We are closely following how the government prosecutes crimes involving cryptocurrency.
The federal government is responsible for investigating and prosecuting crimes that cross state lines. If any element of a crime crosses a state line (such as an internet connection that connects to an out-of-state server), the case can fall under federal jurisdiction.
Because cryptocurrency involves internet transactions, almost all crypto cases are prosecuted on the federal level. This means that cryptocurrency crimes can carry steep penalties, including mandatory minimum sentences.
What Is Cryptocurrency Fraud?
Broadly speaking, “cryptocurrency fraud” refers to using deception or trickery to unjustly increase your cryptocurrency holdings or induce someone into giving you theirs.
Depending on the facts of the case, the Department of Justice can charge cryptocurrency fraud cases as any combination of wire fraud, mail fraud, grand larceny, money laundering, computer hacking or identity theft — among others.
Cryptocurrency fraud cases are very common. In fact, according to the internet security firm CipherTrace, more than $1.2 billion was stolen in cryptocurrency fraud cases in the first quarter of 2019 alone.
Here are some common examples of cryptocurrency fraud:
As more casual investors get involved in cryptocurrency, federal investigators have seen an increase in cases of “cryptocurrency theft” aimed at taking advantage of them.
In these cases, cryptocurrency thieves seed the internet with fake “currency support numbers.” When a casual investor runs into an issue, they search the open web for a support number and call the phony number.
Then, the fraudulent support operator asks for access to the victim’s digital “wallet” to temporarily transfer the victim’s currency to another wallet maintenance. It is never returned.
More than $1 billion is stolen in cryptocurrency theft cases each year, according to CipherTrace.
Hacking Cryptocurrency Infrastructure
Cryptocurrencies use their own encryption techniques to set rules around how many units of their currency can be in circulation at once. But what happens if someone breaks into the system to change the rules?
That’s exactly what some enterprising hackers did to Ethereum Classic in 2019, generating around $1.1 million in value for themselves out of thin air.
Cryptocurrency Exit Scams
As we mentioned above, there are now more than 4,000 altcoins that have made initial coin offerings (ICOs), with more launching every day.
How do cryptocurrency exit scams work? It’s deceptively simple. A cryptocurrency promoter will launch a new platform based on a promising concept. As part of the ICO, the promoter will collect cash from early investors. Then, the promoter disappears.
As an example, in July 2019 the federal government filed charges against a cryptocurrency promoter accused of stealing more than $7 million from investors in an alleged exit scam.
Bitcoin Money Laundering
Many have tried and failed to use Bitcoin for money laundering. There is a common misconception that Bitcoin transactions are anonymous, when, in fact, transaction records are stored in the blockchain and publicly visible.
Determined money launderers can try to run Bitcoin holdings through “mixers” (also known as “tumblers”) or trade them on unregulated exchanges. However, we’ve seen that the FBI has gotten much more sophisticated in how it is able to trace Bitcoin transactions. Add to this that the European Union countries and international coalitions have stepped up their cooperation in stopping money laundering through crypto.
In April 2019, two men pleaded guilty to laundering $2.8 million in illicit drug sales through Bitcoin.
Related: Using Cryptocurrency in Drug Trafficking, Child Pornography or Conspiracies
With the rise of cryptocurrencies, the web also saw a proliferation of “dark web” marketplaces like the now-defunct Silk Road (shuttered by the FBI in 2014).
These marketplaces offer venues for users to trade illegal goods like drugs, weapons, child pornography and stolen credit card information. It’s also been documented that these hubs have been used for sex trafficking and murder conspiracies.
Purchasing or selling goods on darknet websites can lead to a whole host of federal charges. For example, shipping illegal drugs across state lines can lead to drug trafficking and mail fraud charges, while weapons trafficking can lead to even more serious penalties.
What are the Penalties for Cryptocurrency Related Crimes
Federal crimes carry steep penalties. For example, wire fraud carries a maximum sentence of 20 years in Federal Prison and fines of up to $250,000.
Mail fraud also a maximum penalty of 20 years, and grand larceny is punishable by up to 7.5 years in Federal Prison. Federal crimes also typically include “mandatory minimum” sentencing, meaning that it is sometimes not possible to avoid prison time if you are convicted.
Defenses Against Cryptocurrency Charges
“Robert Helfend is one of the best criminal defense attorneys I’ve ever worked with. He was so knowledgeable, and always made sure I understood everything every step of the way. I would definitely recommend him to anyone who wants an understanding, caring, and truly helpful lawyer.”Pat, CA
Federal charges are no joke. If you or someone you love has been accused of a crime related to cryptocurrency, it’s important to speak with a skilled federal criminal defense attorney as soon as possible. The federal government has almost unlimited resources to investigate and prosecute crimes, so you can expect that they will not go easy.
The good news is that cryptocurrencies are still very, very new. They are continually evolving, and it is often hard to track a user’s behavior on crypto platforms beyond a reasonable doubt.
Because of this, it is critical to work with a criminal defense attorney who understands cryptocurrencies. As a National Trial Lawyers Top 100 Attorney, Robert M. Helfend has been at the forefront of cryptocurrency cases in federal courts.
We can work with you to assess your situation, gather evidence and build a defense to protect your freedom. Call today for your free case evaluation — 800-834-6434.