Cryptocurrencies were created to be the cutting edge of finance, allowing users to hold and exchange money independent of government oversight. Now, innovative organized crime outfits throughout Latin America are exploiting them to hide ill-gotten gains.
Even though every transaction made using cryptocurrencies like Bitcoin is public information, the currency itself is held in anonymized “wallets” that are accessed using a digital key, making identifying the participants nearly impossible.
While Bitcoin appears to be the cryptocurrency of choice for criminal groups, it is one among a growing number of different cryptocurrencies – including Litecoin, Tether, Monero, and others – some of which may find criminal uses in the future.
These are five of the most common ways that organized crime makes use of cryptocurrency in Latin America.
1. Money Laundering
Successfully concealing the origins of one’s criminal income is perhaps the most important challenge that gangs face. Here, cryptocurrencies make their most obvious and prevalent contribution to organized crime.
In late September, the Civil Police of Rio de Janeiro arrested 12 people on charges of laundering money using cryptocurrencies. The dozen people, who allegedly belonged to a militia that controls the city's Muzema and Rio das Pedras, are accused of using Bitcoin to conceal revenue generated from extorting local businesses.
Meanwhile, Mexico’s Financial Intelligence Unit (Unidad de Inteligencia Financiera - UIF) is attempting to curb cryptocurrency money laundering by taking down cryptocurrency exchanges operating illegally, said Santiago Nieto, the head of the unit.
Such exchanges are often used by criminal gangs. The provenance of the money is further obscured by buying small quantities of Bitcoin spread over many anonymous wallets.
While money laundering hides illicit revenue, many gangs have started to operate in Bitcoin from the beginning to hide their identities even more effectively. Hence, the prevalence of Bitcoin ransom payments.
On August 11, Gustavo Torres González was found murdered in the Venezuelan town of Tía Juana, Zuila, after his family failed to pay the full amount that his kidnappers demanded. According to a source who spoke to El Pitazo, the ransom payment had been demanded in Bitcoin.
In Argentina, authorities reported the kidnapping of a merchant who was held for five days until providing his captors a sufficient payment in Bitcoin.
3. Ransomware Extortion
Cryptocurrency ransom payments also are often asked when criminals hold corporate data hostage.
Following an attack on its computer systems, Brazilian meat processing company JBS, which supplies a fifth of all the beef consumed in the United States, paid an $11 million ransom in bitcoin. US authorities said the group responsible was hacking collective “REvil," which allegedly has ties to Russia.
Known as a ransomware attack, this type of extortion sees corporate data stolen or computer systems locked.
According to Yonatan Streim Amit, co-founder of cybersecurity firm Cybereason who spoke to NPR, the availability of cryptocurrencies has accelerated large-scale ransomware attacks by making it easy to move large sums of ransom money across borders in seconds in a way that is “in a sense untraceable and definitely uncontrollable.”
4. Cryptocurrency Scams
The hype surrounding the enormous profits that some have made from investing in cryptocurrencies has made them an excellent tool for scammers selling “get-rich-quick” schemes.
On August 25th, Brazilian police dismantled a gang that bilked investors through a cryptocurrency Ponzi scheme. Operation Kryptos – as the raid was called – led to the seizure of 591 bitcoins that were valued at the time at $28.4 million, the largest seizure of cryptocurrency in Brazilian history.
The scheme, and others like it, lured investors with the promise of guaranteed high returns generated from cryptocurrency investments. In reality, it paid old investors with money taken from new victims.
Because investors buy-in with cryptocurrency purchases, these scams can be particularly hard to trace.
The use of cryptocurrencies for money laundering or other criminal activities requires groups to hold large quantities of digital currencies without raising suspicions.
To meet this need, a secondary criminal economy has emerged in which gangs recruit ciberburreros (cyber mules) – young people whose identities are used to buy large volumes of cryptocurrencies via what appears to be many different buyers.
Abimael Zavala Martínez, a managing partner at Zavala Abogados and a cybersecurity expert, told El Economista that the use of ciberburreros mimics how young people were once used as mules by the Sinaloa Cartel to move drugs into the United States.
By concealing a single large bitcoin purchase within many seemingly smaller transactions, organized crime can avoid detection and continue taking advantage of the opacity cryptocurrencies offer.