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If you happen to be pro-bitcoin, there is no reason to get alerted. Fraud is not a biased matter and fraudsters do not target cryptocurrency in particular just to sink bitcoin itself and put an end to the era of the cryptocurrency.
Whether as coincidence or direct relation to properties of the cryptocurrency, we can’t help but notice that along with successful cases of bitcoin adoption and use, there are also cases of misuse and bitcoin-related fraud leading to questions about the proper regulation or even shift to the next big thing (maybe ETH?). There is no particular industry or a particular type of fraud that is facilitated by bitcoin, but the cryptocurrency certainly finds itself in quite puzzled situations. From a one-person LSD shop working on bitcoin being busted or dark web drug marketplaces from Norway to governments noticing bitcoin in relation to AML policies, cases vary, but bitcoin is somehow involved in a range of them. Some bright entrepreneurs have even built “sustainable” networks and make millions on bitcoin-based drug businesses (until they get locked up in prison for 17 years, of course).
It’s been almost five months into 2016 and there are already quite a few instances of criminal activities related to bitcoin. In fact, just couple days ago, three guardsmen from the District of Columbia Army National Guard were indicted on charges arising from a scheme to use bitcoin to buy stolen credit and debit card numbers from foreign websites, re-encode cards issued in their names with those stolen numbers, and then fraudulently purchase items at Army and Air Force Exchange Service (AAFES) stores on military bases and elsewhere for use and resale.
As stated in the official announcement, the defendants used bitcoin to purchase stolen credit and debit card numbers of individuals and businesses from foreign internet websites. They selected and purchased stolen credit and debit card numbers of individuals and businesses holding federal credit union accounts, and those with billing addresses in or near Maryland. They bought magnetic stripe card encoding devices and software to re-encode credit, debit and other cards with the stolen credit and debit card numbers.
Pawan Duggal, an advisor on cyber laws, recently commented in the popularity of bitcoin in criminal circles, saying, “Bitcoin was introduced to the public in 2008 but due to its features, it is now majorly used in criminal activities. It became more dangerous when users started using it through the darknet, which can only be accessed by specialized software.”
Law enforcement officers in Delhi have noticed bitcoin becoming the preferred choice in illegal transactions, as The Daily Mail reports.
“Bitcoin currency transactions need monitoring as this method of sending money to any part of the world is being used by criminal syndicates, including organized prostitution, involving fat deals. It has been noticed that people involved in prostitution are sending money from abroad through bitcoin to various parts of Mumbai, Delhi, etc.”
Criminals download and use a special software that allows them to bypass PAN card details for transactions, making them untraceable. Recently, Bengaluru Police reportedly found a trail of bitcoins used to buy drugs from a dark site.
Earlier in May, the chairman of the Digital Bitcoin Company has been arrested on charges of fraud over a loss of more than $306,000 in fraud losses to 49 customers in one month. It appears that the Digital Bitcoin Company’s chairman has been involved in fraud schemes before. The chairman set up the company in June 2014. In January 2015, he falsely claimed that major market players wanted to buy bitcoins at a high price, thereby attracting many customers to buy bitcoins for alleged margin trading speculation. In fact, he altered the company’s server settings and turned his customers’ bitcoins into his own. He then publicly claimed that his company was being hacked online and shut down his operations.
While not a recent scandal, the Tokyo-based Mt. Gox bitcoin exchange scam story is about to blossom this year in the form of strict regulations. Back in 2014, the company filed for bankruptcy, declaring that 750,000 customer bitcoins and another 100,000 belonging to the exchange were stolen due to a software security flaw. The lost funds were equivalent of $480 million at that time. Moreover, the company also declared that more than $27 million went missing from its Japanese bank accounts. In February this year, another bitcoin exchange Kraken, announced a significant progress in the investigation into the claims of Mt. Gox’s creditors. The company is handing out millions of dollars in virtual currency to some of those who lost out at the hands of Mt. Gox.
Two years after the scandal, Japanese governments introduced a new legislation requiring virtual currency exchanges to be regulated by the Japanese financial services authority. According to the new law, virtual currencies will be classified as “asset-like values” and will require virtual currency exchanges operating in the country to register with the Financial Services Agency and verify the identities of their users. A similar story of the legislation aimed to regulate virtual currency happened in New York with BitLicense.
One of the governments from the other continent also recently decided to put some pressure on bitcoin. Ghana’s Financial Intelligence Centre stated that the use of virtual markets and virtual currencies such as bitcoin and kitiwa is a severe risk to the country’s security. Based on available international records, the government found that insurgencies have been funded from Ghana. With this assessment, the Center is now working to make Ghana the first country in West Africa to publish its national risk assessment. Although an increasing number of African countries are moving towards electronic transactions with the growing use of bitcoin in particular, official statements that tie various electronic payment platforms including bitcoin to money laundering and terrorism financing create doubts over the disruptive tendency of the digital currency.
Another unpleasant surprise hit bitcoin a day ago when Spanish police announced the arrest of 30 people suspected of illegally distributing pay television content and of laundering the proceeds by investing in bitcoin “mining” centers for processing transactions in the digital currency, which use intensive computing power to generate more bitcoins.
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