The Federal Bureau of Investigation (FBI) has outlined why cryptocurrency fraud is taking on increased significance after findings were made during its Cryptocurrency Fraud Report 2023.
According to the report, the FBI and the Internet Crime Complaint Center (IC3) received more than 69,000 complaints regarding crypto-related fraud attempts. This led to losses of more than $5.6bn last year.
What may be the most damning revelation from the report is that despite crypto-related fraud only amounting to 10% of all financial fraud complaints in the US, fraud losses committed via the use of crypto amounted to 50% of all financial fraud losses.
Michael D. Nordwall, Assistant Director of the FBI Criminal Investigative Division, links the rise in crypto fraud losses to the speed and anonymity of decentralised finance affording fraudsters the opportunity to commit these types of financial fraud.
He said: “The decentralised nature of cryptocurrency, the speed of irreversible transactions, and the ability to transfer value around the world make cryptocurrency an attractive vehicle for criminals, while creating challenges to recover stolen funds.
“Once an individual sends a payment, the recipient owns the cryptocurrency and often quickly transfers it into an account overseas for cash out purposes. Rapid and accurate complaint reporting are key to assisting law enforcement in investigating fraud schemes that exploit cryptocurrencies.”
Further insight into the report outlines that there were 69,468 total fraud complaints relating to crypto. This was a 45% increase from 2022 levels, with the most common crypto-related fraud complaint being investment fraud, a common trope associated with crypto.
Crypto has often been used as an investment instrument for many over the past several years, moving away from its initial purpose as a sole per-to-per payment method with no intermediaries.
The FBI notes that due to crypto’s “widespread promotion as an investment vehicle”, this has festered into fraudulent promotional campaigns by criminals to attract first-time buyers into the fear of missing out on a potential profitable return.
Crypto being used by criminals as a vehicle for financial fraud has often been one of the mitigating factors when it comes to outside adoption of the digital currency, being commonly associated with dark web criminal circuits and scams.
The US has now seemingly become a hotbed for crypto-related fraud, as the FBI revealed some startling statistics as to how it has become the most targeted country when it comes to crypto fraud losses.
Within 2023 alone, the IC3 revealed that the US ranked number one in terms of crypto fraud losses with $4.8bn, $4.6bn more than the Cayman Islands which ranked second.
Other notable countries within the top 10 for crypto fraud losses include Mexico (third: $127m), Canada (fourth: $72m), the UK (fifth: $59m), India (sixth: $44m), and Australia ($24.7m).
The FBI cited three main factors as to why fraudsters use crypto for criminal means; its decentralised nature, irrevocable transactions that move quickly, and challenges to following funds.
Because crypto transactions do not rely on third-party intermediaries, the transaction therefore does not need to be verified or validated for it to be processed, enabling an increased likelihood of potential fraud.
In a bid to halt the year-over-year increase in crypto-related fraud, which has increased every year in the US since 2019, the FBI has issued some guidelines to consumers who may be a target.
The FBI has encouraged those to submit a complaint to IC3.gov even if they have not been a victim to financial loss. For cryptocurrency transactions, these details include cryptocurrency addresses; the amounts and types of cryptocurrencies; transaction hashes; and the dates and times of the transactions, providing any other information they may have about the scam.
