Seven years ago, agents from the U.S. Federal Bureau of Investigation raided a public library in San Francisco to arrest Ross Ulbricht, the mastermind of Silk Road. Launched in 2011, Silk Road was the first modern Darknet market where anonymous users could buy illicit drugs, guns and other illegal products using Bitcoin (BTC).
Although Silk Road was closed in 2013 following Ulbricht’s arrest, many individuals still use Bitcoin and other cryptosystems to buy illegal drugs in Darknet markets. For example, a recent press release issued by the Naval Criminal Investigation Service, or NCIS, states that the last year has seen an increase in drug-related investigations involving Navy personnel. Many of these individuals have been specifically caught buying LSD using cryptosystems in the Darknet markets. The release notes:
„Recent police reports have revealed that an increasing number of people are turning to purchasing illicit substances through the Darknet because of the perceived anonymity provided by tools such as The Onion Router (TOR). They also use crypto currencies such as Bitcoin to pay for purchases.
Although markets on the Darknet are havens for tools like TOR, which offer anonymity by hiding IP addresses, law enforcement officials have been using new techniques to identify buyers and sellers in those markets. In addition, while some transactions in crypto currencies can be anonymous, many are traceable. Michael Meyer, the chief information officer of the automated crypto coin trading platform ArbiSmart, told Cointelegraph that while the use of crypto coin for the purchase of illicit drugs may seem safe, Bitcoin’s transactions are not as private:
„Even with the transparency associated with cryptosmart, Bitcoin is not as private as people tend to think. Companies like Chainanalysis and CipherTrace are able to provide many details about each transaction, which can eventually reveal the identity of the wallet owners and the people involved.
NCIS has issued a warning to Navy personnel about the risks of making illegal purchases in the markets on the Darknet. NCIS has also noted that international, federal, state and local law enforcement agencies have been working together to infiltrate these markets, identifying and prosecuting those involved.
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Law enforcement is getting smarter
John Jefferies, the chief financial analyst of the analysis company Blockchain CipherTrace, told Cointelegraph that virtually all market transactions on the Darknet are conducted in cryptomon currencies. While this may be true, Jefferies noted that law enforcement is improving the way it works, he said:
„Criminals have the misconception that crypto currencies are anonymous, or they think they can launder it. However, the basics of real-world money laundering now apply to the world of cryptology.
In June 2019, the Financial Action Task Force, or FATF, established a set of traditional banking regulations that will apply to the crypto-currency sector. Also known as the „Travel Rule“, these new guidelines provide anti-money laundering and „Know Your Customer“ measures in relation to cryptomoney. These rules are ultimately intended to prevent crypto currencies from being used for money laundering. The FATF noted that the Travel Rule would be a requirement for digital asset service providers to enforce it by June 2020. However, it appears that it may take longer than expected for the entire crypto sector to adopt these standards.
However, according to Jefferies, some progress has already been made. According to the Iq Option report on crypto and anti-money laundering crimes in the spring of 2020, the global average of direct criminal funds received by exchanges fell by 47% in 2019. This shows a three-year low for crypto currency exchanges worldwide