The expansion of cryptocurrencies has attracted not only investors and consumers, but also some of the criminals. This Monday (28) the Santa Catarina Civil Police launched Operation Wallet, which is investigating a huge money laundering scheme using digital currencies. According to experts, the ease of transportation, the high speed of transactions, the degree of anonymity and the lack of control make cryptocurrencies attractive for criminal activity.

Operation Wallet investigates the use of cryptocurrency in drug trafficking in six cities in Santa Catarina – Photo: Disclosure/Civilian Police

Unlike conventional currencies, which are regulated by a central bank, cryptocurrencies operate in a decentralized system where the authenticity of transactions is guaranteed by a global network of users.

Ramises dos Santos Silva, a cybersecurity specialist at Safera, explains that while transactions are recorded on a public and immutable “ledger” (blockchain), the relationship between addresses and real identities is unknown. This feature of cryptocurrencies makes police investigations much more difficult as it makes tracing extremely difficult.

Roselo López, a crypto-economics expert with experience in mining cryptocurrencies on an industrial scale in Latin America, highlights how difficult it is to find these digital assets. “You can remove the wallet from your computer, download it to a flash drive, write down passwords on paper, and no one will ever know about its existence,” he says.

This makes it difficult for authorities to recognize the password of a digital wallet when they encounter it. “The police are not ready to determine that a set of 12 words can be the private key of a cryptocurrency wallet. And when the police identify a cryptocurrency wallet, there is nothing to stop that amount from being transferred quickly to third parties,” says Lopez.

Ramices notes that as new methods of facilitating illicit activity emerge, authorities should keep a close eye on these emerging trends and develop innovative strategies to combat financial crime.

Challenges for the authorities

Currently, there is no regulatory framework in the cryptocurrency market that prevents illegal activities. Financial institutions have raised the flag of the need for authorities to oversee transactions with these digital assets in order to reduce the risks of illegal activity and fraud.

Is it safe to invest in cryptocurrencies? – Photo: Shutterstock/ND

Ramices points out that international cooperation plays a vital role in effectively suppressing these activities. Agreements and platforms for the exchange of information between countries can facilitate the exchange of data and experience, allowing for coordination and more flexible response to threats.

Cryptocurrency crimes

According to experts, it is extremely important to establish stricter rules for cryptocurrencies. This may include requirements for exchanges comply with Know Your Customer (KYC) and Anti-Money Laundering (AML) standards, as well as the obligation to report suspicious transactions to the relevant authorities.

While transaction and stakeholder transparency can discourage the misuse of cryptocurrencies, this scenario also pushes for a certain degree of centralization, which goes against the decentralized nature of the technology, Ramices says.

Because technological innovations can be used for criminal activity, they also offer resources to track and prevent such activity. Ramices highlights an alternative approach based on “advanced data analysis and the use of artificial intelligence to detect suspicious patterns and anomalous behavior in cryptocurrency transactions.”

“Machine learning algorithms can analyze large datasets to detect unusual transactions, such as large transfers or complex sequences of transactions. This allows the authorities to identify suspicious transactions for further investigation,” he explains.

Wallet operations

Operation Wallet, launched on Monday, has already resulted in more than 30 search warrants, 17 arrest warrants and vehicle seizures. In addition, 15 bank accounts and 16 cryptocurrency wallets were blocked in one of the largest brokerage houses in the world.

The group under investigation is suspected of sending a Santa Catarina woman arrested in Indonesia in December 2022 with a suitcase containing cocaine hidden in a double bottom. The operation covers six cities in Santa Catarina: Florianopolis, San José, Biguaçu, Imbituba, Camboriu and Navegantes.