Cryptocurrencies compound federal efforts to curb federal fraud

The volume and velocity of criminal activity siphoning taxpayer dollars from federal programs, and the use of cryptocurrency to hide their efforts, have reached stunning levels, especially during the COVID-19 pandemic, a group of high-level federal officials said at a law enforcement and public safety technology forum this week.

“After 30 years of law enforcement, and 20 years of [investigating] complex fraud, I’ve never seen anything of this magnitude,” said National Pandemic Fraud Recovery Coordinator Roy Dotson, special agent in charge at the U.S. Secret Service.

Dotson continued: “Obviously, the magnitude was high, but [we saw] just how pervasive it was when there were YouTube tutorials telling you how to apply for unemployment — if you live in Florida, how you can get it in Washington; or get a [Paycheck Protection Program] loan if you don’t have a business,” he said. “I don’t know how many people I talked to that just said, ‘I thought it was free money.’”

While he credited Congress and the federal government for trying to help Americans by trying to get relief funds out quickly during the pandemic, he stated plainly, “the vetting process wasn’t ready for it.”

Carole House, the White House National Security Council’s director for cybersecurity and secure digital innovation, echoed those observations, citing government estimates “north of $100 billion in pandemic fraud. The scale is devastating,” she said.  House, who previously served as senior cyber and emerging tech policy officer at the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), said she was stunned by “the egregious amount of fraud” she saw, with people using federal relief funds to buy million-dollar homes.

“The tactic that interested me the most was the targeting of virtual meetings,” she told an audience of more than 250 federal, state and local law enforcement and public safety officials attending an AFCEA Bethesda forum at the National Press Club. “Criminals were compromising virtual platforms, using deep fakes to basically put up an image of the CEO to get to the person controlling the finances, [directing them] to send some payment to criminally controlled accounts.”

Following the money

Having the tools and manpower to follow the money has grown increasingly important for law enforcement agencies, both because of the dramatic growth in digital evidence that must be collected and because of the rising reliance on cryptocurrencies to launder the flow of money, said Steven D’Antuono, assistant director in charge at the FBI.

Criminals are deceiving people into “putting money in normal bank accounts, and then immediately siphoning it off into crypto, which we can trace eventually, it just takes a lot more work for us to do,” said D’Antuono. “And if anyone knows anything about the financial kill chain, we need to know the information quickly, so that we can go through SWIFT,” the global financial messaging service, to intercept the funds. Criminals are transferring from one coin to another to launder their money, “so there are a lot of challenges trying to trace those illicit funds,” he said.

“Even your most basic investigations today utilize cryptocurrency,” noted Dotson, saying converting cash to cryptocurrency is occurring on the smallest white-collar crimes.

At the same time, the expanded use of digital analytics, the cloud and new tools for spotting aberrations in financial transactions is giving federal law enforcement officials “a whole new mechanism for [identifying] vulnerabilities that are being exploited,” said House. But it’s also helping law enforcement investigators identify “members for disruption and potentially for attribution and understanding what the transnational criminal networks are popping up in these ecosystems,” she explained.

The fact that the White House is standing up an interagency COVID-19 task force on pandemic relief fraud, and designating a special prosecutor, are signs of how seriously federal officials view the issue of pandemic relief fraud, House said.

She also revealed that the White House is “actively working on” an executive order expected to be published “in the coming weeks” aimed at combatting and preventing “identity theft and fraud in government relief programs and other government benefit programs.”

Speaking to the topic of public safety, Matthew Emrich, associate director of fraud detection and national security at the U.S. Citizenship and Immigration Services, noted that fraud is also continuing to occur on a human dimension, involving “a large number of perpetrators and a large number of victims,” he said. “Some people see it as a victimless,” or just another version of white-collar crime, “but it can involve some pretty serious consequences for people.”