TAILORED OPERATIONS

Canada ranks among the top countries in cryptocurrency adoption, with an estimated 15-20% of Canadians owning 'crypto' and the Bank of Canada actively considering a digital dollar.

History of Crypto

Bitcoin (Digital Gold)

• Launched in 2009 by an anonymous entity known as Satoshi Nakamoto.
• Market Capitalization: Approximately $1.3T USD (2023).

Ethereum (Digital Silver)

• Co-founded in 2015 by Vitalik Buterin, a Canadian-Russian programmer.
• Smart Contracts and DeFi: Powers over 70% of decentralized finance applications.

Developer Ecosystem

• Bitcoin Developers: 1,200 active developers contributing monthly.
• Ethereum Developers: 8,000 active developers
• Growth Rate: Ethereum's developer community grew by 215% between 2018 and 2023.

Digital Wildcat Banking

• Token Proliferation: Over 20,000 different cryptocurrencies exist as of 2023.
• Market Dynamics: Many tokens lack regulation, echoing the unregulated "wildcat banking" era of the 19th century.

Digital Wallets and Privacy Tools

• Digital Wallet Basics: Software or hardware used to store, send, and receive cryptocurrencies.
• Privacy Wallets
  • Wasabi Wallet: Implements CoinJoin to mix transactions, enhancing privacy.
  • Samourai Wallet: Offers features like Whirlpool mixing service.
• Mixers
  • Bitcoin Fog: Processed over 1.2 million BTC (~$78 million USD) before being shut down in 2021.
  • Tornado Cash: Facilitated the laundering of over $7 billion USD worth of Ether since its inception.

Crypto Forensics and Investigation Tools

The rise of cryptocurrency has necessitated advanced tools for tracing and investigating illicit activities on blockchain networks. Law enforcement agencies must familiarize themselves with these tools to effectively combat crypto-related crimes. Below is an overview of leading crypto forensics and investigation tools, their unique features, and how they can aid in police work.

Chainalysis

• Overview: Chainalysis is one of the most widely used blockchain analysis platforms, employed by over 50 law enforcement agencies globally.
• Features:
  • Transaction Monitoring: Real-time tracking of cryptocurrency transactions across multiple blockchains.
  • Wallet Screening: Identification of high-risk addresses linked to illicit activities.
  • Investigation Software: Tools like Chainalysis Reactor enable detailed tracing and visualization of fund movements.
• Specialty: Strong focus on compliance solutions and extensive historical data, aiding in uncovering complex financial networks.

Top Competitors to Chainalysis

Understanding the capabilities of Chainalysis' competitors can help law enforcement choose the most suitable tools for their needs.

Elliptic

• Focus: Compliance and risk management for financial institutions, governments, and crypto exchanges.
• Features:
  • Transaction Monitoring: Real-time surveillance to detect and investigate suspicious activities.
  • Wallet Screening: Risk scoring and identification of wallets associated with illicit entities.
  • Regulatory Reporting: Tools to ensure compliance with anti-money laundering (AML) regulations.
• Specialty: Strong emphasis on AML compliance and regulatory reporting, providing actionable intelligence for law enforcement investigations.

CipherTrace

• Focus: Blockchain intelligence and cryptocurrency AML solutions.
• Features:
  • Transaction Tracing: Comprehensive tracking of cryptocurrency flows across multiple blockchains.
  • Risk Scoring: Assessment of transaction and address risks to identify potential threats.
  • Compliance Monitoring: Helps institutions adhere to global AML regulations.
• Specialty: Known for its global reach and partnerships with regulators. Acquired by Mastercard in 2021, enhancing its resources and capabilities.

TRM Labs

• Focus: Risk management, compliance, and fraud detection.
• Features:
  • Cross-Chain Analysis: Supports a wide array of blockchains for comprehensive investigations.
  • Real-Time Monitoring: Immediate alerts on suspicious transactions.
  • Risk Assessment: Detailed profiles on transactions and entities for informed decision-making.
• Specialty: Scalable infrastructure emphasizing data integrity and real-time analytics, suitable for large-scale operations.

Bitquery

• Overview: Bitquery provides a suite of blockchain data products, including the Money Flow tool.
• Features:
  • Money Flow: Visualizes the movement of cryptocurrency funds, aiding in transaction tracing.
  • Data API: Access to blockchain data across multiple networks for customized queries.
• Specialty: Cost-effective solutions with flexible data querying, suitable for tailored investigative needs.

Free and Low-cost Tools

Arkham Intelligence

• Overview: Arkham Intelligence is a free blockchain analytics platform offering extensive tagging, sophisticated visualization, and tracing capabilities.
• Features:
  • Extensive Tagging: Rich database of labeled addresses, helping identify entities behind transactions.
  • Visualization Tools: Advanced graphs and charts to trace the flow of funds effectively.
  • User-Friendly Interface: Accessible to users without specialized training, lowering the barrier to entry.
• Specialty: Democratizes access to blockchain analytics, making it an excellent resource for law enforcement agencies with limited budgets.

Block Explorers

• Examples: Etherscan, Blockchain.com.
• Features:
  • Transaction Details: Provide basic information on transactions, addresses, and blocks.
  • Free Access: Available to the public at no cost.
• Specialty: Useful for quick lookups and preliminary investigations but limited in advanced analytics.

Importance for Law Enforcement

• Enhancing Investigative Capabilities: These tools enable law enforcement to trace illicit funds, identify criminal networks, and gather evidence necessary for prosecution.
• Compliance and Reporting: Tools with strong AML and regulatory features assist in meeting legal obligations and facilitate international cooperation.
• Resource Optimization: Free and cost-effective tools like Arkham Intelligence and Bitquery provide valuable functionalities without significant financial investment.
• Staying Ahead of Criminals: Predictive analytics and machine learning can help anticipate criminal activities like scams for proactive intervention.

Recommendations

• Tool Selection: Agencies should evaluate tools based on specific needs, considering factors like budget, required features, supported blockchains, and jurisdictional requirements.
• Training: Proper training is essential to maximize the effectiveness of these tools. Understanding their capabilities and limitations will enhance investigative outcomes.
• Integration: Combining multiple tools can offer a more comprehensive approach, leveraging the strengths of each platform to fill gaps and cross-validate findings.
• Collaboration: Engage with tool providers for customized solutions and stay updated on the latest features and threats in the crypto space.

• Chainalysis: Official Website
• Elliptic: Official Website
• CipherTrace: Official Website
• TRM Labs: Official Website
• Crystal Blockchain: Official Website
• Arkham Intelligence: Official Website
• Bitquery: Official Website

Illicit Use of Cryptocurrencies

Cyber-Enabled Crimes on the Rise

• Child Exploitation Material: In 2023, Canada saw a significant increase in CSAM cases reported to the police, in part due to heightened public awareness and strengthened partnerships aimed at combating online child sexual exploitation and abuse.
• Cyber Component Prevalence: A substantial majority of these incidents included a cyber element, with 79% of CSAM cases and 20% of sexual violations against children being recorded as cybercrimes.
• Increase Linked to Cybercrime: Nearly 97% of the increase in CSAM incidents in 2023 involved a cybercrime component, highlighting the digital shift in these offenses.

Financial Crimes Involving Cryptocurrency

• Fraud Rates Increasing
  • Second-Highest Contributor to CSI: Fraud was the second-highest contributor to the Crime Severity Index (CSI) in 2023, with a 12% increase in the fraud rate compared to 2022.
  • Incidence of Fraud: Over 201,000 incidents of all fraud types were reported in 2023, nearly doubling from about 91,400 incidents in 2013.
  • Cyber-Related Fraud: Almost 24% of all fraud incidents were reported as cybercrimes, many involving the use of cryptocurrencies for illicit transactions.
• Extortion Rates Climbing
  • Fourth Consecutive Year of Increase: The rate of police-reported extortion rose by 35% to 35 incidents per 100,000 population in 2023.
  • Fivefold Increase Over a Decade: The extortion rate in 2023 was five times higher than in 2013, increasing from 7 to 35 incidents per 100,000 population.
  • Cyber Component in Extortion: Nearly 49% of extortion incidents were reported as cybercrimes, with cryptocurrencies often demanded as the medium for payment.
• Underreporting of Financial Crimes
  • Low Reporting Rates: According to the 2019 General Social Survey on Canadians' Safety, only 11% of fraud victims reported the incidents to the police.
  • Implications for Law Enforcement: The underreporting suggests that the actual scale of crypto-related financial crimes could be significantly higher than police data indicates.

Cybercrimes Dominated by Fraud and Extortion

• Majority of Cybercrimes: Combined, fraud and extortion accounted for 60% of cybercrimes reported in 2023.
• Use of Cryptocurrency: Cryptocurrencies are increasingly used in cybercrimes due to their perceived anonymity and ease of cross-border transactions.

Challenges in Crypto Policing

• Emergence of Crypto in Cybercrime
  • Evolving Criminal Strategies: Criminals are leveraging cryptocurrencies to facilitate cybercrimes such as fraud, extortion, and distribution of illicit materials.
  • Encryption and Anonymity: The use of privacy wallets and mixers complicates the tracing of illicit transactions.
• Resource Allocation
  • Need for Specialized Training: Law enforcement requires updated training to handle the technical aspects of crypto-related investigations.
  • Technological Tools: Investing in advanced blockchain analysis tools is essential for effective policing.

Recommendations for Law Enforcement

• Enhance Cybercrime Units
  • Specialized Personnel: Recruit and train officers specifically for cyber and cryptocurrency crimes.
  • Public Awareness Campaigns: Increase public education on the risks of crypto-related frauds to encourage reporting.
• Strengthen Partnerships
  • Collaboration with Tech Firms: Work with blockchain analytics companies to stay ahead of criminal methodologies.
  • International Cooperation: Engage with global law enforcement to tackle cross-border crypto crimes.

Additional Statistics and Insights

• Child Exploitation Online: The significant cyber component in child exploitation cases underscores the need for digital vigilance. With 97% of the increase in CSAM incidents involving cybercrime, law enforcement must prioritize online monitoring and intervention strategies.
• Financial Impact: The combined rate of all fraud types accounted for 9% of the total CSI value in 2023, second only to breaking and entering (15%), indicating the substantial impact of financial crimes on community safety perceptions.
• Growth Over a Decade: The rate of reported fraud incidents nearly doubled over ten years, from 260 incidents per 100,000 population in 2013 to 501 incidents per 100,000 population in 2023.
• Underreporting Issues: With only 11% of fraud victims reporting to the police, actual crime rates may be significantly higher, suggesting that the $24.2 billion received by illicit crypto addresses in 2023 could be just the tip of the iceberg.

Sources

• Statistics Canada: Police-Reported Crime Statistics in Canada, 2023.
• General Social Survey on Canadians' Safety: 2019 Data on Crime Reporting.
• Chainalysis: 2023 Crypto Crime Report.