US Department of Justice Recovers $4bn Worth of Stolen Bitcoin!

This week the US Department of Justice announced that it recovered US $4 bn worth of stolen bitcoin, which was taken from the platform Bitfinex in 2016. The stolen cryptocurrency was obtained from the platform via hackers who engineered around 2000 unauthorized transactions in 2016. The amounts were recovered through the accounts of the alleged money launderers Ilya Lichtenstein and Heather Morgan. The duo are also facing charges for their alleged money laundering activities.

Prior to their arrest, Lichtenstein and Morgan maintained a public profile as fintech entrepreneurs. Morgan was also a self styled social media influencer with a wide following on Tiktok. She was known in particular for showing off her lavish lifestyle and creating "rap-videos". Both Morgan and Lichtenstein currently face the prospect of 20 year prison sentences.

This development has a number of implications for cryptocurrency and fintech businesses and industry participants. First, the hacking of financial platforms remains a dangerous possibility and a serious risk. The perpetrators of such crimes can be very difficult to trace, due to the anonymous nature of cryptocurrency transactions. As it can be seen, the DOJ took almost six years to trace the stolen currency, and the main perpetrators may still be at large.

Second, despite seeming to be "legitimate" or "normal" (if not quirky) business or finance professionals, Morgan and Litchenstein were (if proven guilty in court) sophisticated criminal operators. This demonstrates the difficulty of identifying the true intentions of market participants in fintech circles, and it highlights the extent of damage such individuals can inflict on markets while seeming harmless or innocent for all intents and purposes.

There is a dire need for strong due diligence and verification systems in fintech businesses. Individuals who seem normal or harmless may have dangerous ideas, and therefore organizations must not assume digital transactions are automatically safe or well structured. The mechanics, purpose and structure of individual transactions, service users and participants should be looked at on a case by case basis, to the extent possible. Only when looking at the operations of market participants closely will it be possible to find traces of larger conspiracies. Unfortunately, managing transactions on scale is not conducive to effective due diligence, and therefore organizations must critically look at whether scaling transactions is worth the due diligence risk.

The cryptocurrency and digital market pose a classic "greed v risk" proposition to participants. With digital transactions, the potential for business and payment transfers is unimaginable, in terms of scale and volume. By the same token, the scale for destructive fraud is also beyond our ability to conceive.