Cryptocurrency Fraud , Cybercrime , Fraud Management & Cybercrime
IRS Seeks Fresh Ways to Trace Cryptocurrency TransactionsTech Firms to Receive Grants to Support Research Efforts in Cybercrime Fight
The U.S. Internal Revenue Service is offering grants of up to $625,000 to tech companies that devise ways to help the tax agency trace cryptocurrency transactions as part of its investigations into money laundering and other types of cybercrimes.
The IRS’s criminal investigation department, which looks into a range of cybercrimes, including money laundering and illegal currency transactions on darknet marketplaces, is spearheading the effort.
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Cybercriminal gangs and fraudsters are moving away from bitcoin and embracing other types of virtual currencies, such as monero, because they are more difficult to trace along the blockchain, the IRS says.
The agency notes, for example, that the ransomware gang Sodinokibi, also known as REvil, has adopted monero as its preferred payment for ransom from victims (see: More Ransomware Gangs Threaten Victims With Data Leaking).
"The use of privacy coins is becoming more popular for general use and is also seeing an increase in use by illicit actors," the IRS says. "For example, in April 2020, a RaaS (ransomware as a service) group called Sodinokibi (a former affiliate with the GrandCrab RaaS group) stated that future ransom request payments will be in monero rather than bitcoin due to transaction privacy concerns."
The IRS also says it’s seeking new technologies and methods to trace cryptocurrency transactions that use the Lightning Network - a so-called "layer 2" payment protocol that operates on top of a blockchain-based cryptocurrency, such as bitcoin, and allows for faster transactions between two parties.
"Currently, there are limited investigative resources for tracing transactions involving privacy cryptocurrency coins, such as monero, layer 2 network protocol transactions, such as Lightning Labs, or other off-chain transactions that provide privacy to illicit actors," according to the IRS.
The IRS wants to provide its criminal investigation agents with new ways to trace cryptocurrency transactions. These include developing technologies that have additional tracking capabilities, such as predictive analytics, to help agents determine the likelihood of various cryptocurrency transactions.
The tax agency also wants to implement new algorithms and source code that would enable its agents to continually modify and update tracking capabilities.
"All solutions must support cryptocurrency transactions that occurred in 2020,” the IRS states. “All solutions must support open standards for interoperability … to facilitate easy integration into internally developed IRS criminal investigation cryptocurrency analytic systems and data."
The IRS is accepting proposals through Wednesday. In a first round of grants, companies that have produced a working prototype will receive $500,000. In a second round, these companies will develop their prototypes into working concepts over the next eight months. If those are completed and approved by the IRS, the companies will receive an additional $125,000.
The IRS grant program comes at a time when cybercriminals and fraudsters are growing more sophisticated in how they use cryptocurrency. In January, blockchain analytics firm Chainalysis published a report that found threat actors are using new methods to convert virtual currency into cash (see: How Cybercriminals Are Converting Cryptocurrency to Cash).
In June, the U.S. Justice Department announced a civil forfeiture complaint in an effort to recover millions in cryptocurrency that allegedly was stolen from 280 accounts by North Korean hackers (see: DOJ Seeks to Recover Stolen Cryptocurrency).
In August, security firm CipherTrace announced that it had developed a monero tracking tool for the Department of Homeland Security to assist that agency with its investigations.