DOJ Files Civil Forfeiture Against Cryptocurrency Hackers

Tuesday, September 15, 2020

The U.S. Division of Justice (“DOJ”) filed a civil forfeiture grievance detailing two hacks of digital forex exchanges by North Korean actors. These actors stole tens of millions of {dollars}’ price of cryptocurrency or different digital property and in the end laundered the funds by Chinese language and different over-the-counter (“OTC”) cryptocurrency merchants.[1] The grievance filed in United States Federal Court docket within the District of Columbia recognized 280 accounts that have been used to launder the stolen property.

The grievance particulars two associated hacks of digital property allegedly orchestrated by North Korea. In the summertime of 2019, a digital forex trade was hacked by an actor tied to North Korea, who stole over $250 million price of other cryptocurrencies and tokens, together with Proton Tokens, PlayGame tokens, and IHT Actual Property Protocol tokens. The funds have been laundered over a number of months by a number of middleman addresses and different digital forex exchanges in a course of often known as “chain-hopping.” In an effort to obfuscate the transaction path, the defendants transformed the traceable cryptocurrency into Bitcoin, Tether, or different types of cryptocurrency which are tougher to hint. Regardless of the subtle laundering strategies used, regulation enforcement was in a position to hint the illicit transactions.

The second hack, which concerned a U.S. primarily based firm (probably an funding fund) centered on the Algorand blockchain, occurred in September 2019. On this occasion, the North Korea related hacker gained entry to the digital forex wallets, held by the corporate on different platforms, and digital property held by the corporate’s companions. The hacker stole practically $2.5 million and laundered it by greater than 100 completely different accounts at one other digital forex trade. The funds from each of the hacks have been allegedly laundered by the identical group of Chinese language OTC actors.

DOJ’s announcement final month reveals two noteworthy developments in this sort of investigations: U.S. Cyber Command will now be a participant in related investigations and the Cryptocurrency Strike Drive’s experience and ability in tracing and seizing digital forex are past what criminals beforehand thought doable. This case is the newest instance of the U.S. authorities’s use of refined monitoring instruments to establish and take motion towards events which are utilizing blockchain expertise for nefarious functions.

These instances function good reminders of the outdated adage that you’re “solely as robust as your weakest hyperlink,” which is especially true of blockchain expertise. Even when a blockchain has excellent inner safety the info, and the worth tied to that knowledge, could be stolen by hacking an trade, which has usually been a weak level of digital asset safety. Exchanges and different “off chain” transactions, similar to private wallets within the case of the second hack, are proving to be the Achilles heel of blockchain networks.

Footnotes

[1] In cryptocurrency markets, over-the-counter trades are additionally facilitated by OTC brokers who negotiate instantly with the client and vendor. The OTC dealer finds consumers and sellers for a commerce. OTC trades are thought to supply higher liquidity and elevated anonymity.