Tracing Illicit Funds: A Quick Case Study

Improvements in KYC standards and compliance are increasing the odds for professionals and law enforcement in tracking down bad actors and recovering stolen funds. As the digital economy continues to advance, the concept of 'anonymity' surrounding cryptocurrency transactions continues to be misunderstood.

Various methodologies, tools, and data sources can be used to trace the flow of digital currencies across the complex and interconnected network that is blockchains.

A recent matter that we were involved in required us to trace and detail the date, time, count, value and trail of a fraud victim’s Bitcoin funds.

Armed with specialised knowledge and software (a cryptocurrency tracing tool with exchange attribution, transaction mapping and monitoring functions) a total of 9.8732 BTC (around 550,000 AUD at the time of this posting) was able to be traced to several international ‘off-ramp’ destinations where the Know Your Customers (KYC) standards apply.

Figure 1. Image of tracing completed by Hall Chadwick Blockchain identifying addresses the victim send funds to and further crypto exchanges these addresses interacted with.

The funds left the victim’s account in three transactions of 5.7994 BTC, 1.7897 BTC and 2.2842 BTC to 2 addresses attributed by the specialised tool to a low trust rating exchange. Within minutes of receiving these funds, they were split and sent to multiple addresses, with several of these addresses attributed to other crypto exchanges.

The total 9.8732 BTC was notably split to several addresses linked to notable exchanges including a large international exchange as well as an address linked to the infamous Lazarus Group.

The identification of these addresses and the attribution to exchanges provided clear targets for further investigation by law enforcement. Our investigations were then used to obtain subpoenas in USA courts for the relevant exchanges to provide KYC data on these addresses.

Cryptocurrency tracing is a vital component in ensuring the integrity of the emerging digital financial systems. This case is more than just a narrative; it highlights our specialisation in bringing transparency to the digital sphere for our clients.