Crypto Tracing Services for Lawyers
Bringing a “lawyer’s” mindset into cryptocurrency by using their understanding of policy, regulation, and compliance.
This would benefit the industry as a whole, right?
Well, a good number of people would agree as there have been a lot of transactional issues relating to scams, hacks, and multiple thefts in the space. Even though crypto and web3 present a custodial approach to finance while decentralizing the status quo, it is imperative to understand that there is a need for regulation of some sort in certain areas of crypto.
Let’s take for instance the issue of scams and wallet hacks in the space. Almost everyone who has had this ugly experience would plead with some law enforcement to recover their stolen funds.
This would be much easier if there is a soft landing for law experts to enter and begin navigating the space, gaining more understanding into the underlying blockchain technology supporting crypto and legal issues associated with their use while helping users gain more clarity on transactional and policy issues in this highly evolving space.
In this article, we will delve into cryptocurrency tracing by lawyers, and how they can use readily available tools to navigate and uncover various crypto-related cases.
Overview of Crypto Tracing
Crypto Tracing is a very important process that is needed to identify and track various assets or cryptos (eg, $ETH, $BTC, $SOL) across different blockchains, carefully uncovering transactions and analyzing blockchain data to understand the movement or flow of funds.
Importance of Crypto Tracing in Legal Cases
- Security and Compliance: Tracing cryptos helps to adhere to regulatory requirements and encourage the prevention of illegal activities such as money laundering and fraud which is now being carried out on multiple blockchains, especially ones that are privacy-oriented (eg, Monero)
Here is a typical example, imagine a scenario where an organization or financial institution discovers that one of their staff is using their product or service to launder money via cryptocurrencies, a lawyer can approach this case by using advanced crypto tracing and blockchain analytics tools. Investigators can use these tools to trace these transactions and build proof as a part of their litigations.
2. Fraud Detection: Crypto tracing is essential for detecting and uncovering fraudulent schemes, which can help in the recovery of stolen assets. Let’s take for instance a user reports to a law enforcement agency or a legal firm that he/she fell victim to a phishing scam that resulted in their Bitcoin and other crypto assets stolen. Using a powerful blockchain analytics tool or software, investigators can track the flow of the stolen Bitcoin through the blockchain.
By analyzing transaction patterns, they identify the wallet address where the stolen funds were transferred. Further tracing can reveal that the funds were moved to multiple intermediary addresses before being deposited into an exchange. With this information, the investigators can notify the exchange to freeze the assets and assist law enforcement in recovering the stolen Bitcoin.
3. By providing verifiable transaction history data, crypto tracing is very important in further conflict or dispute resolution which can result when one party lays claims to another in the event of crypto scam and arrest. Imagine a situation where an arrested scammer claims to have not stolen funds from an account or exchange and his on-chain footprints (transaction histories) are submitted to the authorities as evidence.
Tools and Techniques Used in Crypto Tracing
- Blockchain Analytics Tools: Platforms like Coinpath® Money Flow offer comprehensive tools to trace transactions, visualize money flows, and gather detailed insights into blockchain activities.
- Forensic Analysis: This involves examining transaction patterns, wallet addresses, and connections to identify suspicious activities. It also requires a crypto investigation service which comes in handy to ease the process.
Introducing Crypto Tracing Tools and Services
Crypto Investigation Service
Bitquery offers Crypto Investigation Services which helps affected individuals or even organizations and law firms to trace and track funds or stolen assets. This service provides a comprehensive approach that includes fund tracing, legal support, and cooperation with authorities to ensure a thorough resolution.
To access this service, you only need to “Submit Your Case” on the website and you will be prompted to fill out a form that captures the necessary details for the investigation.
Coinpath® Money Flow
Money Flow is a tool for precisely tracking, monitoring, and visualizing fund transfers. It is an advanced cross-chain tracking tool that you can use to trace assets across multiple blockchain networks, going through different decentralized exchanges (DEXes), cryptocurrency mixers, bridges, and other DeFi platforms.
As a lawyer using Money Flow, you can efficiently :
- Obtain detailed transaction reports (downloadable)
- Manage your cases by importing visualized transactions and uploading it on your case-related documents.
- Link on-chain transactions and counterparty information
Crypto Cases Faced by Lawyers
1. Resolving Disputes Between Customers and DEX
Most lawyers often deal with cases involving locked accounts, frozen assets, and chargebacks on DEX. These issues require a good understanding of the nature of these exchange platforms, while also navigating the technicalities of blockchain transactions to resolve disputes and recover assets.
A cryptocurrency exchange user can file a complaint due to asset freeze, which can happen when the exchange suspects that the user is involved in fraudulent activity. To resolve this, a seasoned crypto lawyer or investigator can use crypto tracing tools to analyze the transaction history of the user’s account and look for evidence that can be unusual transaction patterns or connections to known blacklisted addresses.
If the investigation clears the customer of wrongdoing, the exchange can safely unfreeze the assets. Conversely, if fraudulent activity is confirmed, the exchange can then proceed to take appropriate action, such as prolonging the asset freeze indefinitely and probably notifying law enforcement.
2. SEC Investigations and Civil Defense
Cryptocurrency projects can attract scrutiny from the SEC for potential regulatory violations. Lawyers defending these projects need to ensure that they are compliant with securities laws while defending their clients in investigations and enforcement actions.
To demonstrate that the ICO did not violate securities laws, the lawyers can use blockchain tracing tools to analyze the flow of funds from the ICO, identifying the sources and destinations of investments. They ensure that investor funds are handled in compliance with regulatory requirements, such as KYC (Know Your Customer) and AML (Anti-Money Laundering) regulations.
An example of a project’s token that generated funds through an ICO is Gnosis ($GNO), going through the token on the Bitquery explorer, you can see the amount of holders, unique wallets(senders and receivers), and other statistics. Using these stats and analyzing how the initial $GNO funds were distributed (outflows) and how much each top holder has, an investigator or a lawyer can see if it is in compliance with regulatory requirements for an Initial Coin Offerings.
Additionally, the lawyers review the project’s marketing materials, whitepapers, and communications to investors to prove that the ICO was conducted transparently and in good faith.
By presenting detailed blockchain analyses and comprehensive documentation, the legal team can build a robust defense, showing that the project operated within legal bounds and addressing any SEC concerns effectively.
3. Business and Investment Fraud
The current crypto space is rife with fraudulent schemes and scams. Lawyers work to trace stolen funds, identify perpetrators, and recover assets, often involving complex blockchain forensics and international jurisdictions.
Most investors usually fall victim to fraudulent cryptocurrency investment schemes that promise high returns but end up stealing their funds. Any lawyer representing an affected investor needs to trace the stolen funds across various blockchains. Using advanced blockchain forensics tools, they can follow the flow of funds from the investor’s wallet to the fraudster’s accounts.
In many cases, these funds are moved through multiple transactions across different cryptocurrencies and exchanges to obscure their trail.
The lawyer must identify these transactions and connect them to the fraudster, even if the fraudster operates from another country. This may involve collaborating with international legal authorities and leveraging blockchain analytics to uncover the full scope of the fraud.
4. Divorce Proceeding Crypto Forensic Investigations
During divorce proceedings, lawyers conduct forensic investigations to identify and value cryptocurrency holdings, ensuring equitable division of assets. This requires expertise in tracing blockchain transactions and evaluating digital asset portfolios. In a typical divorce case, a lawyer would trace the crypto assets held by both parties, provide an accurate valuation, and ensure the assets are divided equitably, considering the volatility and unique nature of cryptocurrencies.
5. Wire and Bank Fraud
Some crypto transactions can be linked to traditional financial frauds. Lawyers need to connect on-chain activities with off-chain events, working with financial institutions and law enforcement to trace and recover misappropriated funds.
Let’s consider a scenario where a criminal uses cryptocurrency to launder money obtained from a bank fraud scheme. The lawyer’s job is to trace these transactions on the blockchain and connect them to fraudulent bank activities. This involves:
- Blockchain Analysis: Using advanced blockchain analysis tools like Money Flow to follow the flow of crypto funds.
- Collaboration: Working with financial institutions to track the initial source of the funds.
- Law Enforcement: Coordinating with authorities to ensure the recovery of the laundered money.
For instance, if a hacker transfers stolen bank funds into cryptocurrency, the lawyer must identify the wallet addresses involved and track any subsequent transactions. By connecting these on-chain activities to specific off-chain events, such as the initial theft from a bank, the lawyer can build a case for asset recovery and criminal prosecution.
6. Forfeiture Proceeding Representation
When crypto assets are seized by authorities, lawyers represent clients in forfeiture proceedings, arguing for the return of assets or challenging the legality of the seizure, often involving intricate legal and technical arguments.
For instance, if an individual’s crypto assets are seized under suspicion of being linked to drug trafficking, the lawyer might need to show through blockchain analysis that the assets were actually earned through legitimate means, such as investments or business activities. This process involves presenting detailed transaction histories and expert testimonies to support their client’s case for the return of the assets.
7. Petition for Remission Preparation
In cases where clients seek to reclaim seized assets, lawyers prepare petitions for remission, presenting evidence and legal arguments to demonstrate that the assets should be returned to their rightful owners. Supposing an individual’s cryptocurrency is seized under the assumption of its involvement in illegal activities. A lawyer would:
- Gather Evidence: Collect documentation and transaction histories to prove the legitimate origin of the assets.
- Prepare Legal Arguments: Draft a detailed petition explaining why the assets should be returned, citing legal precedents and regulations.
- Submit the Petition: File the petition with the appropriate authorities and follow up with any required legal proceedings.
For instance, if a client’s crypto assets were seized during a broader investigation into fraud, the lawyer would need to show that their client’s funds were not part of any illicit activities, using detailed blockchain analysis and cryptocurrency investigation services to support the claim.
How Bitquery Assists Lawyers
- Consultation: Understanding Your Unique Situation
Bitquery starts by thoroughly understanding the client’s specific needs and context, offering tailored consultations to identify the best strategies for crypto asset recovery and investigation.
2. Investigation: Deploying Advanced Tools for Tracing Assets
Bitquery’s expert team utilizes state-of-the-art tools like the Coinpath API to meticulously trace and map out the flow of cryptocurrencies. This involves detailed forensic analysis of blockchain transactions to uncover the origins and destinations of funds.
3. Resolution: Working Towards Asset Recovery and Legal Closure
Bitquery collaborates with law enforcement agencies and cryptocurrency exchanges to assist in the recovery of assets. They also provide comprehensive legal support, including documentation and expert testimony, to strengthen cases and facilitate legal proceedings.
With Bitquery, lawyers get:
- Skilled Crypto Investigators: Experts in blockchain tracing and analysis.
- Advanced Blockchain Tools: Utilizes sophisticated tools like Coinpath® for tracking and visualization.
- Legal Support: Experienced in cooperating with law enforcement and handling legal actions as per the jurisdiction of the client.
- Comprehensive Documentation: Provides detailed reports of transaction traces and counterparty information and which exchange the money was finally deposited to to help corroborate evidence for legal cases.
Conclusion
Regulations on cryptocurrencies will always keep evolving, there is a need for every law firm handling crypto-related cases to be equipped with tools that can help them navigate and resolve issues regarding crypto assets. Bitquery’s advanced tools and services offer lawyers the resources they need to trace, analyze, and recover digital assets effectively. By leveraging Bitquery’s expertise in blockchain forensics and legal support, lawyers can enhance their ability to handle disputes, fraud cases, and regulatory investigations involving cryptocurrencies. This not only aids in asset recovery but also promotes transparency and trust within the crypto ecosystem, ultimately benefiting the industry as a whole.
Bitquery’s suite of tools and services, including Coinpath, Money Flow, and Crypto Investigation Service provide detailed insights and robust solutions for tracing and managing crypto transactions. By integrating these technologies, lawyers and legal professionals can ensure a comprehensive approach to crypto investigations, delivering justice and security in the digital age.
