Tag: Scams

Law enforcement officials tasked with combating illicit cryptocurrency transactions face a moving target.

Con artists are now relying more on artificial intelligence to coax vulnerable people to drain their bank accounts. The technology can mimic the voices of loved ones asking for financial help or demanding a ransom.

Ari Redbord, a former federal prosecutor and U.S. Treasury official, says criminals are continually tweaking their methods as technologies, laws and enforcement tactics shift.

“It’s the whack-a-mole that law enforcement and criminals have played really since the beginning of time,” says Redbord, now the global head of policy for TRM Labs, a San Francisco-based firm that helps government agencies, financial institutions and businesses investigate crypto-related crimes.

Drug dealers embrace crypto

Court records offer a window into the shadowy world of crypto money laundering and drug-dealing.

In Florida, a darknet Ecstasy dealer was busted for using a bitcoin ATM at a vape shop to make more than $32,000 in crypto transactions, according to federal prosecutors.

Kevin Fusco, 37, was sentenced in 2017 to three years in prison for drug conspiracy and money laundering, court records show. He apologized to the judge, acknowledging his role in the nascent ATM drug trade.

“I am now more conscious of the fact that behind the anonymity of the internet and the bitcoin payment system there was no true way to verify who I shared this MDMA with and what their intentions were,” he said, referring to the chemical compound found in Ecstasy.

But in 2022, Fusco was arrested again in Florida while on probation on charges of selling Ecstasy, fentanyl and methamphetamine. His probation was revoked and he’s scheduled to remain in prison until 2031.

Experts say crypto is now being used by drug mules, street-level dealers and Chinese criminals who produce the chemicals used to manufacture fentanyl, the deadly synthetic opioid contributing to most drug deaths in the United States.

“I think at every point in the drug trade … you see bad actors who are trying to figure out how they can move crypto — because you can move crypto across borders very effectively,” Redbord says. “You can move it faster. You can move it in larger amounts. That said, we can trace and track it in ways we can’t trace cash.”

Last year, nine people were charged in federal court in Florida with laundering money for Mexican drug cartels. They allegedly used black market crypto exchanges — not ATMs — to wash the money.

Some of the proceeds came from drug sales in Illinois and some of the cash pickups were made in Chicago, according to an indictment. The crypto was allegedly sold for cash in Mexico and Colombia and then delivered to cartel leaders.

The DEA says “virtual currency continues to be a popular and growing method used to launder illicit proceeds derived from drug sales.” The agency points to the large number of crypto ATMs in Chicago and warns of the cash-washing efforts by drug cartels.

“As the major Mexican [drug trafficking organizations’] leadership becomes younger and more tech savvy,” says the DEA’s recent report on drug trafficking in Chicago, “the expectation is that there will be less reliance on traditional bulk cash smuggling out of the United States.”

Scammers in Africa, Eastern Europe rely on crypto ATMs

Collin Almquist, who spent years tracking terror funding and now monitors digital currencies for New York-based Chainalysis, said crypto ATMs “are much more widely used for scam victim payments than drug purchases or drug trafficking.”

Notably, a scam known as “pig butchering” has been used to coax people into sending crypto to fraudsters posing as love interests.

Other popular scams prey on older adults instructed to send digital money to help an imperiled family member or pay a government debt. On Dec. 9, a New Lenox man deposited $15,140 into a bitcoin ATM after scammers posing as Will County sheriff’s officials told him he needed to make a payment for missing jury duty, according to the sheriff’s office.

In September, the Federal Trade Commission issued a report showing fraud losses at bitcoin ATMs had risen from $12 million in 2020 to $114 million in 2023. Through the first half of last year, the number had already surpassed $65 million.

But the FTC said its analysis “likely reflects only a fraction of the actual harm” because most fraud goes unreported.

James Morley, assistant special agent in charge of the Chicago field office for the Secret Service, says most of the cash from scams goes to criminals in Asia, Africa and Eastern Europe. But American companies also profit.

In March 2023, the crypto ATM industry was rocked by a criminal case in Cleveland involving Illinois-based Bitcoin of America. Sonny Meraban, the founder and chief executive, was accused of turning a blind eye to scammers who got their victims to send them cryptocurrency through the company’s ATMs.

The company was operating dozens of kiosks in northeastern Ohio but didn’t have a “money transmission license” in the state, Cuyahoga County prosecutors said. Investigators seized more than 50 of the company’s ATMs and raided homes in Miami and Naperville and the company’s headquarters in Lisle.

Meraban was indicted on charges of conspiracy, corrupt activity and other crimes. But he pleaded guilty to the lesser charges of violating licensing requirements, receiving stolen property and possessing crime tools. He was sentenced in November 2023 to probation.

Meraban also was ordered to forfeit more than 104 bitcoins valued at almost $4 million when he was sentenced. Most of the money went to law enforcement agencies in Ohio, Illinois and Florida, but $1.5 million was earmarked for taxes and another $111,000 was split among 10 scam victims, court records show. The feds also seized Meraban’s expensive cigarette boat.

According to the Ohio prosecutors, the scammers had posed as government officials or soldiers stationed overseas seeking romance and they persuaded the victims — mostly elderly people — to send money through the bitcoin ATMs to third-party accounts, prosecutors said. The scams funded a Russian crime ring and a neo-Nazi group, officials said at a news conference.

Bitcoin of America wasn’t accused of working directly with the criminals. Still, officials said more than 300 complaints were filed with the FTC about swindles involving the machines and the company.

The company, which operated thousands of ATMs across the country, also agreed to pay $78,000 to scam victims in Connecticut and cease operations in that state, according to the Connecticut Department of Banking.

A message on the company’s website says Bitcoin of America shut down on March 2, 2023. Meraban and the lawyer who represented him in Cleveland didn’t respond to requests for comment.

Legislation dies in Springfield

State and federal lawmakers have recently focused on crypto ATMs in an effort to crack down on fraud.

In September, Sen. Dick Durbin, D-Ill., and six of his colleagues penned letters urging the country’s largest bitcoin ATM operators to “take immediate action” to address scams targeting older adults.

Another reason the legislation didn’t pass was that lawmakers thought the federal government should take the lead in regulating cryptocurrency, Cunningham says. Now that Trump is going to take office again next week, he fears the federal government won’t do much to police the industry and thinks the General Assembly may need to take action.

For now, companies that operate bitcoin ATMs must register with the Treasury’s Financial Crimes Enforcement Network, known in the industry as FinCEN. But some firms don’t follow the rules, according to Morley of the Secret Service.

To combat crypto-related crime, the Secret Service has started placing warnings on bitcoin ATMs that advise the public of the potential for fraud, Morley says.

“One of the things that works in the criminals’ favor is there’s no one there to intervene,” he says. “Well, this is a way where at least we could have a flyer over the top [of the ATMs], and hopefully someone takes time to read it and kind of see their situation that they’re involved in is something we’re flagging [and] they might think twice.”

Crypto ATMs ‘wouldn’t exist’ without crime

Chicago native Marc Jason Grens co-founded DigitalMint in 2014 and built it into one of the largest bitcoin ATM firms in the country, with roughly 1,400 locations across dozens of states.

Grens quickly realized the ATMs attracted crime, and he ultimately decided to shut down the business after finding there was no way to profit without allowing illicit transactions. “The moral of the story is, if you do the right thing this industry wouldn’t exist,” he says.

Initially, Grens says the company’s ATMs mostly served people involved in the sex trade or “drug dealers laundering money.” By 2016, he and his partners found that most customers making large crypto purchases were scam victims. One woman lost $1.2 million, he says.

Grens tried to raise awareness within the industry, but he says the warnings were ignored by other companies raking in money by charging up to 30% in ATM usage fees.

“Everybody hated it because they’re like, why are you trying to burn down our industry?” he says. “They ignored us like the plague.”

Grens says he shut down his ATM business last year after a lengthy wind-down. DigitalMint now specializes in cybersecurity consulting and cryptocurrency payment solutions.

“When I founded the company, I’m like, ‘I don’t want to build something dirty,’ ” he says. “I love bitcoin. … I think it could solve the payment system clunkiness and issues around the world.

“But like any industry, the black markets take advantage of it because there’s no regulation.”