Most law enforcement is no match for the power of cybercriminals using blockchain, an investigative journalist has warned

At the moment, it is just too easy for scammers to quickly move money anonymously across borders, said Spencer Woodman, of the International Consortium of Investigative Journalists in New York.

He was part of a team who spent the better part of a year looking at how cryptocurrency has become the foundation of a new shadow economy.

He spoke about his findings in the ICIJ webinar Inside The Coin Laundry: A Conversation with ICIJ Journalists.

The project revealed how criminals, from scam operators and hackers to cartels and oligarchs, are moving billions of dollars through crypto exchanges so quickly that regulators cannot keep up.

The ICIJ has been investigating financial crime and money laundering for more than a decade, with much focus on the offshore financial sectors where cybercriminals thrive.

In 2023, Mr Woodman worked on an investigative project called Cyprus Confidential, looking at how Cyprus’s financial services sector was used by Russian president Vladimir Putin’s associates to hide wealth and avoid sanctions.

“There were some very interesting cryptocurrency addresses in that batch of documents,” Mr Woodman said. “So I started asking around about what we could do with these addresses.”

Mr Woodman discovered there was quite a bit that could be done with the right tools and expertise.

“It was a steep learning curve,” he said. “Before long, we developed a methodology around identifying cryptocurrency wallet addresses tied to high-risk activity.”

There are many different types of scams that use cryptocurrency, one of the most common being “pig butchering”.

“In these scams you befriend people in other countries through online dating sites or Facebook,” he explained.

Over weeks, sometimes month, the scammer builds their victim’s trust. Then they start dropping hints, saying they made lots of money on crypto. Often the fear of missing out kicks in and the victim takes the bait.

“A lot of people don’t understand cryptocurrency, but they see the headlines about the value of Bitcoin going up,” Mr Woodman said.

Sometimes victims will test the waters by putting a small amount of money into what looks like a sophisticated crypto website. It will seem that their account balance is growing, when in reality their money was whisked away in seconds.

Crypto is often thought to be more transparent than traditional financial systems owing to the underlying public blockchain ledger providing a real-time record of all transactions for anyone to view.

However, Mr Woodman found that this transparency was helpful only to a point. Victims were often caught in a nightmare scenario where they watched their assets moving across the blockchain to numerous unknown cryptocurrency wallets.

“In so many cases law enforcement has no way to identify the ownership of those wallet addresses,” the journalist said. “They cannot figure out what entity is directing their activities or the destination.”

Talking to so many victims of all ages and backgrounds left him shaken.

“Everyone is vulnerable to these types of scams,” he said. “There were victims who were highly functional professionals. I started warning my friends and family to watch out.”

He found that many of the law enforcement people who were tasked with dealing with these crimes were undertrained, under-resourced and overwhelmed.