Long reads

Tech and Crime Series: Cryptoassets and financial crime

Thomas Cattee

Thomas Cattee

Solicitor, Gherson

News broke on 6 March 2021 that John McAfee (“McAfee”) has been charged in the US with conspiracy to commit fraud and money-laundering.  This is in relation to his alleged involvement in a cryptocurrency scheme. 

The indictment states that “McAfee’s so called-cryptocurrency team (the “McAfee Team”), perpetrated two fraudulent schemes relating to the sale to investors of cryptocurrencies”.

The associated press release is quite a mouth-full, noting that the indictment charges “with conspiracy to commit commodities and securities fraud, conspiracy to commit securities and touting fraud, wire fraud conspiracy and substantive wire fraud, and money laundering conspiracy offenses stemming from two schemes relating to the fraudulent promotion to investors of cryptocurrencies qualifying under federal law as commodities or securities.”

FBI Assistant Director William F. Sweeney set out the allegations more simply “As alleged, McAfee and Watson used social media to perpetrate an age-old pump and dump scheme that earned them nearly two million dollars” later warning that “When engaging in illegal activity, simply finding new ways to carry out old tricks won’t produce different results.  Investment fraud and money laundering schemes carry a strict penalty under federal law”.

This article will examine generally how cryptoassets could enable new ways to carry out old tricks, whether regulatory agencies and prosecuting authorities are able to use old legal tricks to catch up, and if we are about to see a slew of new cases coming out of the woodwork

New ways, old tricks

In order to answer this initial question, it is necessary to explore and characterise this new technology.  However, as any of you who have delved down the crypto rabbit hole will appreciate, the technology behind cryptoassets is hugely complex.  

Indeed, a fundamental issue is that cryptoassets are themselves a novel mixture of technologies. As such, they have a combination of unique, and often previously un-tested, characteristics. It is therefore primarily necessary to examine the characteristics themselves. 

In doing so it becomes apparent that cryptoassets can take several forms, namely as a payment/exchange token, security token or utility token.  This “token” is to a greater or lesser extent shared on a decentralised system, which is itself hugely scalable and potentially spread across numerous jurisdictions. Finally, transactions on this system are settled potentially anonymously, almost instantaneously, and on a peer-to-peer basis (again across jurisdictions), and are secured cryptographically in an immutable way. 

So how can these characteristics enable new ways to facilitate old fashioned financial crime? 

Broadly speaking, in relation to money laundering, cryptoassets offer a potentially anonymous, decentralised and cross-jurisdictional conduit to rapidly transfer peer-to-peer value. In relation to perpetrating fraud, the novelty and borderless scalability of this new technology can be utilised by fraudsters to more-easily deceive a much-larger pool of people, in addition the immutable nature of transactions can make redress difficult.

Old legal ways to catch new tricks

Therefore, given these unique characteristics, it might be thought that regulatory agencies and prosecuting authorities would struggle to keep up.  However, agencies and authorities have been alive to the novelty of the fundamental characteristics, whilst also appreciating the applicability of tried-and-tested legal principles.

Take anti-money laundering, although cryptoassets have no central authority (e.g. a bank) to regulate, there was an early appreciation of that fact that there are still intermediaries who can be regulated to deal with issues such as anonymity. 

For example, a 2018 European Parliament Cryptocurrency and Blockchain study noted in relation to anonymity and cryptoassets: “After AMLD5 (the Fifth Anti-Money Laundering Directive) this will no longer be possible to the fullest extent: the cryptocurrency users that want to convert their cryptocurrency into fiat currency via a virtual currency exchange or hold their portfolio via a custody wallet provider, will be subject to customer due diligence”.  Implementation is always a little slower; however, AML5 now imposes various obligations in an attempt to shed light on the issue of anonymity. 

More fundamentally, despite the newness of the technology, never underestimate the application of old, tried-and-tested methods.  This was perfectly encapsulated in a 5 March 2020 Financial Conduct Authority speech, where it was said in relation to crypto-exchanges: “When looking at these businesses, the well-worn logic which underpins financial crime regulation holds true. In traditional markets, for AML purposes, we broadly expect that an exchange is able to identify who they are dealing with, where money comes from and monitoring for suspicious transactions. For cryptoassets, all of this applies. We expect them to perform Know Your Customer (KYC) checks when onboarding clients, use transaction monitoring techniques to ensure they are not handling the proceeds of crime and proactively monitor users for suspicious activity.”

Similar tried-and-tested methods apply against the use of cryptoassets to perpetrate a fraud. Reassuringly, the criminal law has developed logically over many years and through many situations (and technologies) and is arguably also suited to deal with these new changes.  Indeed, it is often said that the only limitation of a fraud is the fraudster’s imagination.  As such, the legal principles which constitute a fraud have been deliberately drafted broadly and simply and therefore cast an intentionally wide-net to capture alleged fraudulent conduct. 

Speaking of which, those of you who have listened to the excellent BBC Missing Cryptoqueen podcast will recall OneCoin.  One of the issues explained in the podcast is that investors believed that that were investing in a new cryptoasset held on a secure and decentralised blockchain, when the BBC alleges that this was not in fact the case.  This whole debacle is described by the BBC as “a familiar scam with a digital twist”.


As with policing any new technology, regulatory agencies and prosecuting authorities are always going to be playing catch-up.   At first blush, the particular uniqueness of this new technology, and the opportunities it presents to criminals, should provide regulatory and prosecutorial headaches. 

However, agencies and authorities have been well advised to look to old tried-and-tested methods underpinned with a bit of common sense and understanding of this new technology.  Further, whereas cryptoasset cases will often span multiple-jurisdictions, agencies and authorities have shown in recent years that they are able to work together effectively on large, complex multi-national cases.

As such, and as this technology becomes yet more prevalent, there will almost certainly be more cases coming out of the woodwork. 

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