According to a sobering new report by the Federal Trade Commission, since the start of 2021 more than 46,000 people have collectively reported more than $1 billion in losses to crypto-related scams, with an average loss of $2,600 per person. The reported 2021 losses were almost 60 times greater than reported losses in 2018.
Many consumers have a lack of broad understanding and comfort with cryptocurrencies, allowing criminals to exploit crypto channels for traditional fraud scams. With pseudo-anonymous transactions and an evolving regulatory landscape, criminals also leverage cryptocurrency to launder money and evade sanctions.
While cryptocurrency is an emerging payment channel, fraudsters rely on tried-and-true methods to defraud their victims. Fraudsters take advantage of two major trends to facilitate attacks:
As a relatively new transaction channel, cryptocurrency can be intimidating to most of the population, and a general lack of understanding about crypto payments creates a rich pool of targets for fraudsters.
The FTC reports the most lucrative fraud schemes reported from cryptocurrency losses are:
Digital address screening solutions, such as wallet screening, are a key line of defence for Crypto Companies. But while screening solutions can protect customers from sending funds to OFAC-listed sanctioned addresses, they are often ineffective in combatting fraud.
Fraud scams are challenging to detect with blockchain analytics alone due to a fundamental element of blockchain technology – the ability to create unique digital addresses. Scammers can create new, seemingly legitimate addresses and direct victims of traditional fraud schemes, such as romance scams or Business Email Compromise, to transfer their funds: newly created addresses are common and created as standard operating by retail wallet software and exchanges.
As a new address has no prior history and has not yet been included in a “negative list” built from previous successful fraud scheme, most blockchain analytics screening will flag the transaction as low risk, allowing the fraud to occur.
Behaviour-based analytics offer an effective approach to detect crypto-related fraud scams. Analytics that incorporate blockchain activity, including wallet addresses and on-chain activity, as well as off-chain and fiat transactions, counterparty analysis, KYC information, and geographic data are essential for a holistic approach to fraud detection. A single Bitcoin purchase and blockchain transfer to a new digital address may not appear to be unusual in isolation but may be potentially suspicious when considered in the context of associated activities. By examining demographic information such as the age and occupation of a person, their blockchain activity, and the aggregate behavior of all fiat involved, behavior-based analytics offer a complete, holistic view of customer activity.
Verafin’s Cryptocurrency Compliance platform is an all-in-one solution including transaction monitoring, case management and regulatory reporting. Our platform presents institutions with the full picture of crypto-related fraud, along with the tools needed to expedite investigations, maintain compliance, and provide actionable intelligence to law enforcement.
To keep a step ahead of scams, an evolution is needed from simple digital address screening to holistic behaviour-based analysis. A complete solution encompassing blockchain and fiat transaction monitoring, as well as behaviour-based analytics, can help protect your institution and your customers from potentially suspicious activity and prevent serious loss.
To learn more how your institution can be best prepared to fight fraud schemes, download this complimentary eBook.
