Introduction
Among the biggest threats to cryptocurrency investors are exit scams. These crimes typically defraud investors of a large amount of money. Massive exit scams have dominated the cryptocurrency crime landscape in the last two years. One such scam, WoToken, defrauded investors of $1.1 billion in 2020. Fraud accounted for 73% of all cryptocurrency crimes in 2020. However, hacks in 2020 were much smaller than in 2019, reflecting an increasing maturity level in the crypto space. Entities are hardening their systems and taking precautions against inside threats. People can exchange bitcoins for other currencies, goods, or services through the x bitcoin club.
Money laundering
As cryptocurrency became more widespread as a means of trading, the risk of money laundering increased. While only a small portion of transactions is illicit, the unregulated nature of cryptocurrencies led to unusual activity. According to a recent report by ciphertrace.com, $2.8 billion in Bitcoin was traced from criminal entities to exchanges in Q3 2018.
The use of cashier’s checks, which are typically payable in cash upon presentation, is another risk factor for money laundering. These checks are often drawn on a bank account in a different country. Furthermore, certain countries impose secrecy laws that prevent banks from disclosing account information, which hinders the flow of information across borders. As such, preventing money laundering from taking place through these mechanisms is crucial.
Transaction monitoring
Financial institutions need to monitor their customers’ transactions to mitigate the risk of cryptocurrency scams. In addition to tracking the transaction flow in a digital asset, firms should perform risk assessments and implement Know Your Customer (KYC) controls. KYC helps firms understand a customer’s identity, financial history, and risk profile. For crypto service providers, this means building risk profiles based on accurate customer data and acquiring verifiable digital credentials from their customers. Such certificates can include official documentation and biometric identifiers.
Companies need to segment their customers based on risk factors to minimize false positives. This will help them implement more targeted and differentiated controls. Detecting prohibited transactions is expensive and time-consuming for enterprises, as they must monitor a large volume of customers. Moreover, they cannot devote enough resources to monitor every customer and transaction. In addition, false positives can cause a lot of labor costs and divert analysts’ attention from confirmed cases. For these reasons, institutions must develop more sophisticated and nuanced risk-based segmentation models based on real-time data.
Cyber insurance
Cyber insurance offers several benefits, including a broad policy that covers cybersecurity. Many cyber insurance policies also extend coverage to shared computer systems. These computer systems are not owned by the insured company but maintained by a third party on its behalf under a contract with the insurer. Such shared computer systems include cloud services, co-location, data hosting, and data backup. They also may consist of shared software, platforms, and infrastructure-as-a-service.
The growing number of cryptocurrency scams has increased the need for cyber insurance. Many insurers have begun offering this coverage to protect against these risks. But despite the ever increasing demand for cyber insurance, a lack of data makes it challenging to provide risk-based premiums. Nevertheless, this lack of data does not mean cyber insurance isn’t feasible. According to Eling et al. (2019), cyber insurance becomes more viable as more data becomes available.
Commercial crime policies
If you’re concerned about losing money due to cryptocurrency scams, you may want to consider a commercial crime policy. These policies typically provide first-party loss coverage for computer fraud and employee theft. Some policies even include endorsements for cryptocurrencies. Be sure to check your policy’s exclusions and requirements, as some don’t cover these forms of digital currency.
The first day of the workshop was structured around two group problem-planning exercises. Each group was comprised of members from different sectors and had to develop a scam involving cryptocurrencies. Group members worked in pairs to develop an initial idea and then joined another team to develop the scheme further. At the end of the session, each group presented its findings in a plenary setting. After presenting their findings, the groups were given a fraud scheme from another group and asked to develop a mitigation plan to deal with it.
Conclusion
Financial institutions can mitigate the risk posed by cryptocurrency scams by taking steps to educate their staff and adopt robust risk management measures. These measures include anti-malware, backups, cold storage, strong password protection, and regular software updates. This list of precautions is not comprehensive and depends on the resources and operating environment of the institution.
In addition to hacks, cryptocurrency scams are becoming increasingly sophisticated. Massive exit scams have dominated the cryptocurrency crime landscape in the last two years. The most prominent exit scam of 2019, PlusToken, netting $2.9 billion, was followed by WoToken, which defrauded investors from a staggering $1.1 billion in 2020. Overall, significant crimes declined in 2020, and a growing number of entities are hardening their systems and taking precautions against inside threats.