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An inside look into the underworld of crypto crime

Crypto sleuth and former US Drug Enforcement Agency agent William Callahan explains how cryptos are being used to fund everything from drug deals to prostitution.
A lot of what used to happen on the dark web now happens on social media, with communication carried out in emojis. Image: Jeenah Moon/Bloomberg

Criminals initially started using crypto because it favoured anonymity, but with modern crypto-tracking technology, maintaining that anonymity is becoming increasingly difficult.

Because blockchain transactions are completely transparent and can be looked up using search engines such as Etherscan or’s Explorer, criminals must find new ways to hand over their crypto anonymously.

William Callahan, director of government and strategic affairs at Blockchain Intelligence Group, a global cryptocurrency compliance and investigations firm, has personally seen crypto being exchanged at a parking lot for “a bag of cash”.

Sometimes crypto is also handed over in a hardware wallet – a physical device that allows for offline storage of the cryptographic keys necessary to access an amount of crypto.

But hardware wallets only go so far to protect privacy. They do not store any cryptocurrency themselves. All cryptocurrency lives on the blockchain, associated with a public address.

When someone needs to access those funds, they are asked for the private key associated with that address. The hardware wallet contains the private keys.

In all matters of cryptocurrency, privacy is assured only so long as money doesn’t move. Once it does, all funds can be tracked. This makes trading in crypto a tricky proposition for criminals.


“Human trafficking is another big area for cryptocurrency,” Callahan, who is also a former US Department of Justice special agent for the Drug Enforcement Agency, tells Moneyweb. “The johns pay for these young women – the victims – in crypto. Many of the women are foreign, and crypto is an easy way for them to send money back to their home countries where it can be used to support their families.”

The act of sending money to one’s home in a foreign country is called a remittance. Even in non-criminal contexts, cryptocurrency remittances have grown in popularity. Sending crypto instead of fiat currency allows remitters to avoid many of the fees associated with more traditional ways of sending money overseas, such as through companies like Western Union.

Social media an open marketplace for illegal activity

The dark web is that part of the internet where users can remain anonymous and where the source of websites is often concealed. In the early days of the internet, it was the go-to place for negotiating criminal deals.

Now it all happens on social media.

“A lot of what used to happen on the dark web – the dark market – you’ll now see happening on social media,” Callahan says. “But you’ll see the communication being carried out in emojis.”

It is up to law enforcement to try and decipher the meaning of these emoji conversations.

For example, an emoji of a nose followed by a snowflake might mean the person is looking to buy drugs.

Any time a wallet address is added to such a social media post, asking for payment for the illicit trade, Blockchain Technologies Group can add that address to its growing database of suspicious wallet addresses to track.

The company then carries out risk assessments on blockchain transactions by comparing every single bitcoin and Ethereum transaction through this database of information scoured from social media, internet sites, publicly accessible court records, and the dark web. If the company detects a suspicious transaction, it alerts its clients.

Transferring value

Organised crime involves the “transfer of value,” Callahan says.

A bag of R10 million sitting in a closet in Pretoria is worth nothing unless you can take it to a bank or somehow get its value transferred.

“But if I can take that [money] and buy refurbished cellphones, I can ship those used cellphones to Columbia and sell them for three times as much.”

The R10 million never leaves South Africa, and the Colombian pesos never leave Colombia. But the value is still transferred.

Cryptocurrency is simply another form of value and it is being used in all sectors of organised crime, Callahan says, such as drug trafficking, arms deals and prostitution. “Crypto did not invent the underworld of crime. It may have created new entrepreneurs, but the underlying criminal activity was always there.”

How crypto crime is tracked

The same crypto tracing technology that Blockchain Technologies Group uses for assessing risk at a corporate level is also used to chase down criminals in the crypto space.

If a transaction occurs from or to a wallet associated with illicit activity, the company contacts law enforcement as needed and alerts it.

Using a proprietary visualisation tool, the company presents a graphical representation of cryptocurrency movements so law enforcement can easily view the illicit crypto’s onramps and offramps.

Here’s an example of this visualisation, showing illicit bitcoins moving through various wallet addresses:

Source: Blockchain Intelligence Group

Criminals will subvert anything good and use it for bad

“The dark web was established for legitimate purposes at one point,” Callahan says.

These purposes included assisting political dissidents operating from within oppressive regimes, and also for journalists who were anonymously seeking information.

“But, like anything else, criminals figured out how to use it to their benefit. So they established what’s called the dark market where you can buy different drugs, animal parts, guns, pornography, or anything illegal.”

For the criminal underworld, the dark web and cryptocurrency seemed to offer a remarkable opportunity – instant payment into an anonymous wallet. But law enforcement is catching up.

Criminals realise their movements are fully visible on the blockchain. They may be able to get paid in cryptocurrencies, but spending it is becoming more difficult as law enforcement agencies watch suspicious wallets.

Listen: R Paulo Delgado explains how law enforcement is chasing down stolen cryptos, in Moneyweb’s Crypto Pod

R Paulo Delgado is a crypto writer with an eye for the bizarre and the human stories behind the always fascinating leaps and stumbles of this new asset class.


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