The Criminal Underworld of Bitcoin…

Part 2 of 3 

Part one: What is Bitcoin?

As we explained in our earlier blog, Bitcoin is the cryptocurrency to beat in today’s online trading world.  Being a private, worldwide, online social community of traders, only adds to Bitcoin’s value and popularity, but it will only retain its online ‘worth’ if people continue to desire it.  Reports claim that Bitcoin has an estimated current online market value of £145 billion.

As well as Bitcoins being traded between individuals, or by using exchange services such as Coinbase or BitBargain (removing the risk of trading with a stranger), it can also be used in exchange for goods. In addition various businesses and restaurants now accept Bitcoin as a form of online currency such as Subway, Expedia, and Microsoft.  There is recent talk that Amazon has purchased three domain names, including ‘’, indicating they may be moving into the Bitcoin market, allowing people to use them to purchase goods.

To trade Bitcoin online, a simple email address is all that is needed to set up your account and start trading and many platforms do not require you to provide identification. Other sites only require very little personal information such as Coinmama, where you can use your credit card without providing verification, and Wall of Coins, which only requires SMS verification.

However, the attraction in the criminal world is the ability to use cash to purchase Bitcoins, as well as trading online. There are currently around ninety-three Bitcoin ATMs in London alone where you can deposit cash to buy Bitcoins.  Many small store owners and shop keepers, including the chain of CEX shops, have these ATMs inside their stores and they are paid around £1200.00 a month to have the facility on their premises.

There is no fee associated with depositing cash into the ATMs, but there is a fee to withdraw funds to your bank account – this of course leaves a trace of where the funds have been deposited.

So, with Bitcoin being a worldwide community, with no legislation or governance, no tax rates or trade limits, and the ability for the trader to be more or less invisible, how exactly do criminals utilise this cryptocurrency to carry out illegal activities.  Recent reports and investigations have described the following activities:

  • The crime can be day to day small scale – for example there are many scams which include providing fake links to Bitcoin downloads which contain viruses and malware. Others impersonate Bitcoin traders, obtain your trust, offer to check if you are on their exchange database by way of your private code key, and then empty your account.  Others offer to increase the value of your Bitcoins for a one-off up-front fee.
  • Pay as you go phones are being used to set up one-off Bitcoin accounts. A trade is then done online, the account is cancelled and the phone discarded. With no identification and no static IP address, the origin of the trade cannot be traced.  This is apparently popular in the global market of buying and selling drugs and weapons.
  • An investigation carried out by one UK newspaper reported finding a whole host of illegal services that could be purchased online with Bitcoins. As well as the illegal trading mentioned above, they found that in an encrypted corner of the worldwide web you can use Bitcoins to purchase fake passports and cloned credit cards, or utilise services such as hiring a hitman or a computer hacker, as well as arranging a whole host of other criminal activities including acid attacks, assault and kidnap. With surges in the value of Bitcoins, the wealth of criminals across the world is apparently rising at a rapid rate.
  • A more recent problem that has arisen for businesses, particularly in the public sector, is ransomware attacks. Computer systems are infected with a virus, usually by way of an email attachment, such as the recent ‘Wannacry’, ‘Petya’ and ‘Locky’ viruses, encrypting all information and demanding a ransom by way of Bitcoins. Victims are directed to an online exchange where the criminals control the site and possess the private key.  The only option is to pay the ransom to decrypt their files.  Reports indicate that in 2016, ransomware attacks made criminals in the region of $1 billion.  In November 2017, 0.5-1 Bitcoin was worth in the region of $9000 – $12000 dollars.
  • It appears the big attraction of the Bitcoin ATMs is the ability to pay in cash and this is where the ease of money laundering occurs. One reported incident occurred in a second hand electronics store where the shop assistant watched a lady peeling off £50.00 notes and paying them into the Bitcoin ATM.  This happened on numerous occasions.  The ability to pay in large sums of cash, without question, is lucrative for drug dealers, who are reported as being regular users of this facility.

They can be known to work near to their local Bitcoin ATM and deposit their monies as soon as a deal is done. This not only cleans the money when it is traded online and withdrawn elsewhere, but makes them less vulnerable to attacks by other criminals. Up to £1500.00 a day can be deposited into these ATMs and with Bitcoin being completely private and separate from the financial platforms, there is no bank clerk or computer presence monitoring activity or demanding explanations.

For any criminal, cash has always been a difficult asset to move due to tight anti-money laundering regulations and due diligence checks, but cryptocurrency it seems, has provided a means to move laundered cash to anywhere in the world with the click of a button.

In light of the above, government, intelligence, and law enforcement agencies across the world are calling for reforms to current legislations to regulate the use of cryptocurrency. The problem is that trading and owning Bitcoin is not illegal, but because it is unregulated and decentralised, money can be transferred into different currencies and sent invisibly across any border to any country in the world.   Whilst the current global threat may be considered relatively low in many respects, with the massive growth in the value of Bitcoin, where will we be in ten years’ time, with new cryptocurrencies surfacing all the time?

Our third blog on this topic will set out and explain the proposed changes that are going through the EU Commission to bring the use of cryptocurrencies in line with modern day anti-terrorism and anti-money laundering regulations, the potential implications with Brexit and the associated required due diligence and know your client checks which may well become obligatory.

Please note, due to the fast moving nature of cryptocurrencies, the points raised in this blog could now no longer be correct, but were correct at time of publishing. 


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