Former IRS crime chief says cash beats crypto in illicit transactions

Cryptocurrencies account for only a small portion of illicit transactions, according to a Chainalysis executive. In this domain, traditional currencies continue to dominate.

Speaking at the Yahoo Finance Future Focus, Jim Lee, global head of capacity building and former US Internal Revenue Service Criminal Investigation chief, argued that the perception that cryptocurrencies are synonymous with criminal activities is inaccurate.

Cash beats crypto

According to the executive, “Cash is still king” due to the “transparent” nature of blockchain technology. As a result, bad actors are unable to launder illicit funds as easily as they can with fiat currencies.

With the majority of blockchain networks being public, law enforcement agencies can trace crypto funds to their source by identifying patterns that may indicate illegal activities.

Most transactions are pseudonymous in nature, meaning that while they are recorded on the blockchain and visible to the public, the identities of the parties involved are not directly linked to their real-world identities. 

However, with additional data and in-depth analysis, these transactions can be linked to the perpetrators. One recent example is the arrest of Rui-Siang Lin, who was charged with running Incognito Market, a darknet drug bazaar.

The Federal Bureau of Investigation (FBI) was able to trace transactions connected to the platform back to Lin via an exchange account he controlled.

According to the Chainalysis executive, this is why he wishes “everything was done in crypto from the criminal element.”

Despite blockchain’s perks, Lee acknowledged that bad actors have continued to exploit innovations in the cryptocurrency space to target investors.

One such tool criminals often utilise is cryptocurrency mixers. These platforms help obscure transactions by pooling together cryptocurrencies from multiple users and then redistributing them.

Crypto mixers have been criticised for their potential use in criminal activities. However, some proponents like Vitalik Buterin believe they are a privacy-enhancing tool.

Innovative approach to combat crypto crimes

During his speech, Lee also highlighted that initial coin offering (ICO) scams are currently the most prevalent threats in the crypto space, warning:

In a market that’s up, everybody’s looking to get rich quick, and they see this as a potential but so do the criminal elements.

Such activities, when operating on a large scale, hurt the credibility of the cryptocurrency, per the Chainalysis exec. 

Lee recalled cases such as the collapse of Hydra, one of the largest darknet marketplaces globally, and the crackdown on the Welcome to Video (WTV) child pornography website, which allowed users to buy content with bitcoin.

He added that in the case of WTV, Chanalysis helped track transactions and identified the market administrator. 

Meanwhile, the firm was also able to seize $3.6bn from hackers in the attack on the crypto exchange Bitfinex. 

Using this as an example, Lee emphasised that tools being developed by platforms like Chainalysis provide transparency and traceability, which is crucial for modern law enforcement.

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