BlueLeaks Exposes How The FBI Tracks Bitcoin Laundering On Dark Web

Written by Dana Sanchez

Jul 08, 2020

BlueLeaks
The BlueLeaks data dump shows how the FBI tracks dark-web criminals laundering dirty Bitcoin by converting it into the privacy coin Monero. Photo by Caspar Camille Rubin on Unsplash

On Juneteenth, an activist group known as Distributed Denial of Secrets published a 269-gigabyte collection of police data known as BlueLeaks that had been obtained by hacktivist group Anonymous.

In the “BlueLeaks” hack, more than 1 million police files were obtained including emails, audio, video, and intelligence documents. Internal memos from BlueLeaks show how police tried to track the activities of George Floyd protesters, how they described groups like the anti-fascist movement Antifa, and internal memos warning that white supremacist groups posed as Antifa to incite violence, Wired reported.

Among the information exposed in BlueLeaks was a report by the Federal Bureau of Investigation showing how the FBI has tracked dark-web criminals laundering dirty Bitcoin by converting it into the privacy coin Monero.

Monero is the most resilient “anonymity-enhancing cryptocurrency” in circulation, according to Decrypt, a website dedicated to demystifying the decentralized web.

Monero is “gaining popularity and could become the cryptocurrency of choice for more criminals in 2020,” Blockchain compliance firm Chainalysis noted in its 2020 Crypto-Crime Report.

The leaked FBI document showed three cases where the Panamanian instant crypto exchange MorphToken was “likely” used to launder “illicit-origin” Bitcoin by converting it into the privacy-focused digital currency Monero, Decrypt reported. Two of the darknet markets that were named were Apollon and Cryptonia.

Instant crypto exchanges such as Morphtoken allow users to convert one cryptocurrency into others. The lack of formal know-your-customer protocols at Morphtoken—a pillar of modern Bank Secrecy Act compliance — have been identified as an area of concern for the FBI.

Criminals use crypto money laundering to hide the origin of their money because transactions made in cryptocurrencies are pseudonymous — written under a false name — according to Elliptic, an U.K.-based firm that detects and investigates crypto-enabled crimes.

Cryptocurrencies can be paid for with cash (fiat) or other types of crypto (altcoin). Some exchanges are more regulated than others. Crypto-based transactions can generally be followed on the blockchain, but once a dirty cryptocurrency is in play, criminals can use an anonymizing service to hide the funds’ source, breaking the links between bitcoin transactions. “Often, the main excuse for illicit hiding activities is the argument that using anonymizing service providers protect personal privacy,” according to Elliptic.

The FBI used a “proprietary software tool” that analyzes financial transactions on the Bitcoin blockchain, alongside MorphToken’s automated programming interface (API), to monitor the transactions, Decrypt reported.

The FBI also analyzed commission fees from Bitcoin transactions on Cryptonia from May to September 2019. It found that every related transaction that could be queried via MorphToken’s API was converted to Monero.

In November 2019, the FBI identified at least four dark web vendors who sent Bitcoin drug sales proceeds to MorphToken Decrypt reported.

“Although MorphToken offers to convert Bitcoin into five different cryptocurrencies, in nearly all the conversions the FBI identified conducted by DNM (darknet market) actors—where the output currency could be identified—the user converted bitcoins into Monero,” according to the report.

The FBI “assumes that darknet market actors are not chain-hopping into Monero with the intent of portfolio diversification,” according to Decrypt.

Listen to GHOGH with Jamarlin Martin | Episode 73: Jamarlin Martin Jamarlin makes the case for why this is a multi-factor rebellion vs. just protests about George Floyd. He discusses the Democratic Party’s sneaky relationship with the police in cities and states under Dem control, and why Joe Biden is a cop and the Steve Jobs of mass incarceration.

Panama has become synonymous with bank secrecy and protection for tax evaders and money launderers seeking anonymity. In the Panama Papers leak, information from Panamanian law firm Mossack Fonseca showed how world leaders, businesses and celebrities globally have been associated with money hidden in tax shelters through the firm. The information was leaked in the form of 11.5 million documents to media around the world.

Monero’s privacy technologies make illicit Monero users unidentifiable, Decrypt reported. Tom Robinson, chief scientist of Elliptic, told Decrypt that he doesn’t think it’s possible to pierce Monero’s veil of secrecy.

As more examples are published of law enforcement successfully tracing cryptocurrencies, criminals will likely increase adoption of anonymity-enhancing cryptocurrencies such as Monero, according to the FBI report assessment.

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