Digital Currencies Fueling Crime on the Internet

Firewall's Matt Dean examines the popularity of digital currencies and its role as an enabler of crime on the Internet.

Digital Currencies Fueling Crime on the Dark Side of the Internet

By Features FOXBusiness

One of the Internet’s gifts to the world is its ability to make its users anonymous. But just as that gift enables things like free speech and freedom of expression, conversely, Internet anonymity serves as an enabler to crime and illicit activities.

The “deep web” is perhaps the most striking example of the Internet’s anonymizing abilities.

Only accessible with special software, this enormous hidden area of the Internet is not indexed by search engines like Google (GOOGL) and Microsoft's Bing (MSFT). While it is said that the majority of the deep web is utilized for lawful purposes, it also serves as a vast forum for criminals to carry out illegal activities and trade illicit goods anonymously.

"The reason why there's this migration into the deep web is very simple: its anonymity,” Ernie Allen, founder and former president of the International Center for Missing and Exploited Children said. “While we all of support the strongest possible privacy protections, our concern is that impenetrable Internet anonymity is a prescription for disaster."

Allen should know. He dedicated his career to bringing down child pornographers and human traffickers. Much of his work was accomplished by partnering with the financial industry, tech companies, and law enforcement to follow the money trail of pedophiles and criminals. But as anonymous payment methods and digital currencies hit the scene, the trail went cold.

"There was a migration of commercial child sexual exploitation, trafficking, and other kinds of criminal enterprises from the mainstream payment system to the deep web, where people can operate anonymously, use digital currencies, conduct their businesses with little fear of being identified or apprehended, unless they make a mistake," Allen said.

Just as its popularity has surged for legitimate purposes, digital currencies also serve as the lifeblood of the underground cyber economy. According to security experts and law enforcement officials, anything goes on the deep web, with digital currency systems facilitating the secret exchange of some of the worst possible goods and services imaginable.

“Anything from credit cards to murder-for-hire to potentially even funding terrorist organizations, because you've got a mechanism to anonymously move money from point A to point K, X, Y, Z, and you're going to be able to do it with a fair degree of anonymity,” Scott Dueweke, ecommerce pioneer and Agilex Technologies director of identities and payments said. “If you do it right you can probably move a fair amount of money through these systems.”

Virtual Shell Game

The frivolous requirements placed on personal identity disclosure are what set many of these digital currency systems apart from traditional ecommerce mechanisms, according to security experts. They argue that little more than an email address is needed to open an account on certain internationally based systems.

“You can hide your identity pretty well, not perfectly, it's not complete anonymity, but if it's done right it's going to be really difficult to track what you're doing, how you're bringing the money in and out – which is the real key, the ingress and egress points,” Dueweke said.

High-level criminals are able to operate in the deep web by carefully taking advantage of the stealthy characteristics that digital currencies have to offer. Those characteristics make tracking digital cash a virtual shell game for investigators.

“Very anonymous, international in scope, many times the ones that we specialize in are utilizing, they’re utilizing Russian language, not necessarily Russian-based, but Russian language,” Ed Lowery, U.S. Secret Service Deputy Assistant Director said. “It does complicate the law enforcement effort that we have.”

Interestingly, Lowery points out that criminals are less likely to utilize crypto-currencies like Bitcoin. That may have to do with the fact that it isn’t all that anonymous – Bitcoin displays all of its transaction data in a public ledger called a block chain, making it possible to follow its movement.

“They’ve been more likely to use digital currency: WebMoney, a Liberty Reserve, or going back a few years to E-gold,” Lowery said. “It's the anonymity it provides. Most of these currencies have very, very lax 'know your customer' standards. They are specifically built to get around the banking regulations from the various international regulators that are out there.”

In addition to WebMoney, Lowery also pointed to Hong Kong-based Perfect Money as another payment system that Secret Service investigators have observed alleged criminals gravitating toward. While WebMoney and Perfect Money continue to do business today, Liberty Reserve and E-gold were taken down by the Secret Service in 2013 and 2007, respectively.

In a response to FOX Business’ request for comment, WebMoney went to considerable lengths to defend its operation. The Russia-based system pushed back on allegations that it maintains lackluster “know your customer” standards.

WebMoney’s emailed statement to FOX Business reads, in part, “WebMoney is not an ‘anonymous’ system. WebMoney also does not provide the anonymity for its users. Such statements may be held by a person who is not familiar with WebMoney system and who has never used the System’ (sic) services. We cannot also accept the fact that the system has a lax ‘know your customer standard’. This standard exists in the system for many years. As we have already mentioned, the user can only fully use the system services, only after his/her personal data was checked and verified.”

Perfect Money did not respond to FOX Business’ request for comment.

Despite the difficulties that exist in prosecuting illicit transactions in the deep web, officials like Lowery are stern on the fact that the anonymity of high-level Internet offenders is not absolute.

“There's an open conversation about ‘how are we now going to move money’? ‘How are we going to continue what we need to do’? So when you're successful against that level of individual, you've made an impact against it,” Lowery said.

Long-Term Impact


Given the roughly 400 digital currencies that exist today, according to estimates, some security experts now warn that its wide-reaching impact is making the traditional financial system irrelevant, arguing the industry no longer has complete control over financing. It is for this same reason insiders say maintaining a traditional bank account is no longer a necessity in today’s world.

“I think the greatest irony of the world we live in today is that the U.S. government and the financial sector no longer have a monopoly on being big brother or in managing finances and capital distributions around the world,” Tom Kellermann, chief cybersecurity officer at Trend Micro said. “The entire underground economy, the shadow economy, has moved outside of the financial sector.”

With these anonymous payment systems and digital currencies now in the mainstream, experts are urging nations around the world to recognize its legitimacy.

Experts like Tom Kellermann and activists like Ernie Allen are calling on governments worldwide to step in to better police anonymous payment systems and digital currencies by doing things like modernizing anti-money laundering regulations. But insiders say that outcome ultimately rests with the industry’s willingness to regulate itself.

“A bare bones standard of due diligence needs to be adhered to by this industry,” Kellermann said. “They, at a minimum, need to know who their customers are and have the capacity to freeze accounts and have someone within their organization who will be willing to collaborate and cooperate with Interpol, Europol, Secret Service, FBI.”

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