Lawyer Asim Iqbal, Coinfirm, and Kroll — Will Blockchain Forensics Help Recover More Lost Quadriga Funds?
As QuadrigaCX users are still waiting for any new major updates in the reclamation of lost funds, one of the major hurdles involved is actually tracing it. Now it seems that Miller Thomson and the QuadrigaCX representative committees have taken this critical step in hiring Blockchain forensics partnership of risk management firm Kroll and their tech partner Coinfirm.
As of right now, only $44 million of the $190 million misappropriated Quadriga funds have actually been recovered.
I had previously written on blockchain forensics companies such as ChiperTrace and mused as to whether or not it had the potential to help recover funds. The nature of cryptocurrency makes this incredibly difficult. I had also featured a soundbite from Miller Thomson lawyer Asim Iqbal of the Quadriga insolvency team who had discussed the legal crypto-tracking challenges their team face:
They have identified large amounts of crypto assets that were transferred from QuadrigaCX wallets to various wallets…. You may be able to establish the identity of the individual who owns a wallet, but there’s no guarantee they’ll be willing to work with you. And without knowing their identity, it’s impossible to get a court order against the wallet holder… Then you have to deal with jurisdictional issues. Claiming the information critical to the recovery process takes time. The proceeding is moving at the speed of law, but the speed of cryptocurrency is much faster. By the time they get a court order to claim an asset, it may no longer even be in that same wallet.
Now it seems, to combat this, crypto law firms and tech companies have paired up to work both the forensics and legal angle at the same time.
Kroll offers crypto compliance and investigations solutions through collaboration with blockchain analytics firm, Coinfirm. Kroll’s website states that they bring new anti-money laundering (AML) compliance, investigations, and security solutions to the cryptocurrency and blockchain technology market.
Coinfirm has been around for a few years as a blockchain analysis and risk management platform, and launched its cryptocurrency reclamation service in October 2019. Interestingly, Coinfirm also provides services for individuals whose cryptocurrency has been stolen. They claim that “After a successful investigation, stolen funds will be returned to your wallet.”
I’ve scoured the web, but have yet to actually find any testimonials or accounts of this working for everybody — it’s still only a year-old initiative and these efforts take a lot of time. Given the speed of the Mt. Gox insolvency process, QuadrigaCX users may not see a dime for many years more to come
So how does this process work?.
How Coinfirm Claims They Recover CryptoCurrency
While Coinfirm is obviously not going to give away their secret sauce, they do an outline on their website the steps they take as a part of the crypto reclamation process.
It begins with tracing the destination, source, and “fingerprints” associated with a fraudulent transaction.
- Destination of funds is aimed to identify blockchain addresses that hold or received funds originating from affected wallets, and tracing all further transactions from there.
- Source of funds identifies addresses that send funds to blockchain addresses related to criminal activity.
- Fingerprints of activity identify accounts of known blockchain services and the method that criminals use to transfer and obscure the funds.
Then the team applies various data mining techniques such as ownership analysis, clustering and e-discovery.
- Ownership analysis uncovers evidence and strong indications of the ownership and beneficiaries of each blockchain address relevant for the investigation.
- Clustering algorithms are used to identify blockchain addresses belonging to the same owner by analytical means.
- E-discovery aims to extract blockchain addresses, transactions or private keys from the digital carriers preserved in the course of the investigation, such as servers and personal computers.
Their aim is ultimately to not only uncover the identity of the owner of accounts with fraudulent funds but use multiple tracing methods to satisfy the needs of many courts worldwide:
“This includes those widely adopted in bankruptcy law, such as first-in, first-out (FIFO), last-in, first-out (LIFO), pro-rata distribution (Proportional Distribution), lower intermediate balance rule (LIBR), with an additional comprehensive set of proprietary methods enhanced for the specifics of blockchain.”
Once they have that evidence, Kroll handles the legal side.
Is This Likely to Help Recover QuadrigaCX Funds?
That is the big question. While certainly, it provides hope to all affected parties, the truth is that the efficacy of Kroll and Coinfirm has yet to be seen. The very anonymity of crypto that its proponents love is also what makes it so hard to uncover misappropriated funds.
Meanwhile, crypto crime is not slowing down — as of June 2020, the amount of stolen crypto through hacks and frauds was already approaching the total $4.5 billion misappropriated in all of 2019.
Hopefully, the coming months (or years) will provide meaningful results to the investors who lost their life savings. We’re all holding our collective breaths.