The new DOJ Law Enforcement Crypto Reports (TL;DR)

TL;DR? Good news!  I read them for you! 

 On 15SEP2022, the Department of Justice released their report "The Role of Law Enforcement in Detecting, Investigating, and Prosecuting Criminal Activity Related to Digital Assets" (66 pages).  The first of the nine reports ordered by President Biden's Executive Order 14067 "Ensuring Responsible Development of Digital Assets" was also released by the DOJ back on 06JUN2022, "How To Strengthen International Law Enforcement Cooperation for Detecting, Investigating, and Prosecuting Criminal Activity Related to Digital Assets" (58 pages). 

Since then, we have seen the Department of Treasury release three reports:

•  "Action Plan to Address Illicit Financing Risks of Digital Assets" (20 pages),
•  "Crypto-Assets: Implications for Consumers, Investors, and Businesses" (58 pages),
•  "The Future of Money and Payments" (56 pages)

Treasury also provided to the White House in July a "Framework for International Engagement on Digital Assets" which is described in their press release, but not provided to the public. 

Earlier this month, the Department of Commerce released their report:
 "Responsible Advancement of US Competitiveness in Digital Assets" (19 pages). 

The Office of Science & Technology Policy also released three reports:

•  "Technical Evaluation for a US Central Bank Digital Currency System" (58 pages)
•  "Climate and Energy Implications of Crypto-Assets in the United States" (46 pages)
•  "Technical Design Choices for a US Central Bank Digital Currency System" (33 pages).  
  

In this blog post, we'll focus on the two DOJ reports, which we will address in the reverse order of  their release, as it seems that it is required to define the role of law enforcement in digital assets before discussing the international cooperation one would seek in this area.

The Role of Law Enforcement in Digital Assets

Despite the Executive Order, it is important to note that the Department of Justice did not need the urging of the White House to establish procedures for addressing Cryptocurrency.  The department created the Attorney General's Cyber-Digital Task Force in 2018, which produced their original report, published in October 2020, titled the CryptoCurrency Enforcement Framework (83 pages).  That original report characterized the illicit uses of cryptocurrency into three broad categories of criminality: 

1. financial transactions associated with the commission of crimes, such as buying and selling drugs or weapons, leasing servers used in the commission of cybercrime, soliciting funds to support terrorist activity, or ransom, blackmail and extortion. 
2. money laundering and the shielding of legitimate activity from tax, reporting, sanctions, or other legal requirements, including operating unlicensed, unregistered, or non-compliant exchanges. 
3. crimes, such as theft, directly implicating the cryptocurrency marketplace itself, such as stealing cryptocurrency from exchanges or defrauding unwitting investors. 

The original report listed many case studies involving indictments, seizures, and arrests in the scenarios above, including SamSam ransomware, Welcome to Video and DarkScandals child sexual abuse services, terrorist funding both through direct donation and via sales of fake medical equipment (PPE during COVID), the Bitcoin Maven case (Theresa Tetley), BTC-e, Operation DisrupTOR (Wall Street Market), DeepDotWeb, DreamMarket, the Lazarus group hacks, HeroCoin ATMs, the Helix mixer, and others. 

The new report points out something that I've recently been mentioning as well.  Bitcoin and other block-chain-based crypto currencies are neither the first digital currency, nor the first one that has facilitated a great deal of criminal trade.  The report mentions E-Gold (1996) and Liberty Reserve (2006) as "pre-crypto" examples of digital currencies, but could have as easily mentioned Webmoney (1998) or PerfectMoney (2007). Many of the points of the new report echo of those of the prior, although the cases have been updated, such as  Bitfinex, Helix, and Hydra Market, estimated at one point to perform 80% of all darknet market-place transactions, and Garantex, the Estonia-based Exchange that laundered more than $100 million of the funds associated with darknet markets. The Colonial Pipeline ransomware and the use by indicted GRU agents of bitcoin, the theft of $600 Million by Lazarus Group hackers in March 2022 are all used to update the original report. 

Two significant additions are the section on the Growth of Decentralized Finance (DeFi) and Non-Fungible Tokens (NFTs). In this area, the discussion of "Decentralized Autonomous Organizations" as opposed to a traditional corporate structure, and the insider trading, money laundering, and tax evasion aspects of NFT trading are discussed.  (Examples of Nathaniel Chastain of OpenSea and Ishan Wahi of Coinbase are provided as insider examples.) 

Section II of the report discusses DOJ efforts such as the National Crypto Enforcement Team (NCET) and its predecessors such as the Money Laundering and Asset Recovery Section's Digital Currency Initiative, and the Internation Virtual Currency Initiative. A few interesting statistics from the FBI, including that as of July 2022, the FBI had worked 1,100 separate investigations across 100 investigative program categories that involved a digital assets nexus. Since their first digital assets seizure in 2014, the FBI has seized $427 million in virtual assets (as valued at time of seizure.)  In February 2022, the FBI created the Virtual Assets Unit.  The Department of Justice has also created a Digital Asset Coordinators Network which is composed of designated prosecutors in U.S. Attorney's Offices across the country who work closely with CCIPS, MLARS, and NCET.  The program is based on the successful CHIP Network (Computer Hacking and Intellectual Property) and the National Security Cyber Specialist (NSCS) Network which each designate prosecutors in every field office to be specially trained and equipped to handle the relevant case types for their office. 

Cryptocurrency fraud investigations are listed as well, including the Baller Ape Club NFT rug pull case, the EmpiresX crypto Ponzi case, the Circle Society crypto commodities case, and the Titanium Blockchain Infrastructure Services Initial Coin Offering case. The Bitqyck case and the $2.4 Billion BitConnect Ponzi scheme case serve as an example of an IRS Cyber tax evasion cases, with the latter also being charged civilly by the SEC. 

The DEA's Cyber Support Section is described as performing cryptocurrency analysis related to the use of cryptocurrency to facilite drug trafficking, while the US Marshals Service is the group manages and liquidates seized crypto funds. HSI has been a key player in many crypto cases, with at least 500 currently active investigations, especially via their Financial Crimes Unit, Cyber Crimes Center, and Asset Forfeiture Unit. The US Secret Service is also involved, with 302 cases involving digital assets and at least 535 seizures of digital assets valued at more than $113 Million at time of seizure.  The US Secret Service is also a top trainer of state and local law enforcement via the National Computer Forensics Institute (NCFI) headquartered here in Hoover, Alabama! They also operate a Digital Assets Awareness Hub to educate the public on crypto risks. 

Regulatory Agencies also play their part, with FinCEN working to enforce Bank Secrecy Act (BSA) guidelines and regulations related to Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) requirements. Treasury manages the OFAC office, which includes sanctioning mixer and state-sponsored crypto hackers. The SEC regulates crypto scams that are structured as "investment contracts, such as BlockFi Lending LLC or the DeFi Money Market. The Commodity Futures Trading Commission (CFTC) regulates the trade of commodities in interstate commerce. They have brought 50+ enforcement actions against organizations such as Coinbase, Payward Ventures (Kraken), Blockratize (Polymarket).  BitMEX is one cryptocurrency derivatives exchange targeted for CFTC enforcement, after $209 Million in darknet market transactions were cashed out via BitMEX, who paid a $100 Million fine, with three co-founders pleading guilty to criminal charges and paying a $10 million fine. 

One last organization of note is IVAN, the Illicit Virtual Asset Notification platform, being built by FinCEN and the FBI's National Cyber Investigative Joint Task Force. The goal of IVAN is to be a public-private information exchange to allow industry to collaborate on timely detection and disruption of the use of virtual assets in furtherance of illicit activity. 

Requests for Legislation 

The Justice report does make several requests for additional legislation, in five categories: 

1. extend the prohibition against disclosing subpoenas (currently in effect for financial institutions) to VASPs (Virtual Asset Service Providers), strengthen the laws against operating an unlicensed money transmitting business, and extend the statutes of limitations from 5 to 10 years for certain crimes. 
2. support for initiatives that would aid investigators in gathering evidence
3. strengthening sentencing guidelines for certain BSA violations
4. extend BSA record keeping rules to VASPs 
5. ensuring that law enforcement has resources to conduct and staff sophisticated digital asset-related investigations. 

The details for this legislative proposals are in section IV of the report, LEGISLATIVE AND REGULATORY ACTIONS THAT COULD ENHANCE EFFORTS TO DISRUPT, INVESTIGATE,

AND PROSECUTE CRIMINAL ACTIVITY RELATED TO DIGITAL ASSETS on pages 41-49 of the PDF. 

International Considerations 

One of the main observations of the report on International Law Enforcement Cooperation is the standard complaint that the Mutual Legal Assistance treaties are too slow, and that faster methods of international law enforcement cooperation, such as the "24-7 Network" often do not have a standard way of sharing requests regarding Virtual Asset Service Providers. (VASPs). 

Next, while the western-friendly nations of the world have largely standardized cybercrime laws under the Budapest Convention on Cybercrime, the way in which the nations of the world define, regulate, and enforce actions against VASPs are varied and inconsistent.  Under the concept of Dual Criminality, where one nation may only ask another to enforce laws which are similar in both countries, much of crypto-crime enforcement lacks such standards. 

While the Cybercrime laws may not have caught up, the International body that deals with Anti-Money Laundering, FATF or the Financial Action Task Force, are clear thought leaders on the Virtual Assets guidelines. (We wrote about FATF in 2019, please see: Money Laundering and Counter-Terrorist Financing: What is FATF? ) Unfortunately, as of July 2021, only 35 participating nations had implemented the FATF suggestions regarding virtual assets and VASPs into their national laws. 

My favorite part of the "Strengthening International Law Enforcement" report is Annex B: "Examples of Successful Cross-Border Collaboration on Digital Asset Investigations." 

Liberty Reserve
BTC-e

Helix 

Silk Road 

Operation Bayonet (AlphaBay and Hansa)

Dream Market

Wall Street Market 

DeepDotWeb

Welcome To Video 

Operation DisrupTOR

Hydra Market 

Twitter hack 

Sodinokibi/REvil Ransomware 

NetWalker Ransomware 

BitConnect 

For each example above, details are shared about which international law enforcement agencies partnered with which US agencies in order to reach the successful resolution.  Inspiring reading! 

Chidozie Collins Obasi - COVID Fraud & Work at Home Scams

On September 9, 2022, the FBI's Philadelphia office asked for help locating Chidozie Collins Obasi.  OBASI is charged with being part of a conspiracy to steal more than $30 Million related to COVID Fraud out of New York.  How did the scam work? Much of it goes back to a typical model = a fake job offer and a counterfeit check.  But in this case, there was much more!

During the COVID-19 crisis, the New York State Department of Health was responsible for buying and allocating ventilators to hospitals in the State of New York.  Two of their hospitals will be relevant in this case. Guthrie, a non-profit health care system based in Sayre, Pennsylvania, but operating two hospitals in New York, and Northwell Health, another non-profit healthcare network at that time the largest provider of rehab and nursing facilities also providing urgent care, hospice care, and home health services. 

Part of the scam conducted by OBASI was to offer for sale three ventilator products sold by the German company Draeger, Inc, with a U.S. headquarters in Telford, Pennsylvania.  Their three most popular ventilators for sale in the US were the Evita 300 ($15,000), the Savina 300 ($17,000) and the Evita V500 ($21,000).  

A few websites were used as part of this scam.  Tawada Healthcare in Indonesia (tawadahealthcare.com), MedWOW Ltd. Global, of Cyprus (medwow.com), Zhejiang Tiansong Medical Instrument Company (zj-tiansong.com). 

Members of OBASI's conspiracy opened bank accounts at foreign banks in China, United Arab Emirates, and Indonesia. They then registered look-alike domain names that appeared to be the domains for Tawada Healthcare, MedWOW, and Tiansong Medical. OBASI and team then made false identities and claimed to be employees in the spoofed companies, including Luiz Alfredo, Marc Alfredo, and others. 

OBASI used a spam-sending service based in the Ukraine (snov.io) and VOIP accounts created via TextMe and TextNow to allow them to use French and US-based virtual telephone numbers that would route to their real devices. 

WORK FROM HOME SCAM 

OBASI then sent thousands of emails to job seekers in the United States offering them employment at one of the spoofed companies. They explained that because their companies were overseas and had no US bank presence, they needed to hire them to accept payments on behalf of their North American customers. The new "employees" were thus duped into acting as money mules for the scammers, opening up bank accounts or allowing their own accounts to be used to receive funds, for which they would receive a commission in addition to their "salaries." 

The new employees would received counterfeit checks being sent from a co-conspirator in Canada and were instructed to deposit the checks into their personal accounts. The checks were delivered via companies such as DHL and FedEx. The funds from these checks, which the employees believed were payments for ventilator sales, were then instructed to be wired to the international bank accounts OBASI and others maintained overseas.  The employees received more than $11 million in such checks although only $1,005,227 was forwarded to OBASI's crew. The work-from-home scam aspect ran from approximately September 2018 through March 2020.

VENTILATOR SALES 

Beginning in March 2020, OBASI's crew noticed the shortage of ventilators and determined that they might make more money by claiming to have a large supply of Draeger ventilators for sale to US companies.  Their next round of work-from-home scams were to recruit medical sales professionals to act as their agents to sell the ventilators, which this class of employees believed were held in large numbers by Tawada Healthcare. OBASI took the role of researching how such ventilators were normally sold, using false identities to reach out to Draeger asking questions about their ventilators. He then created price quotes and sales contracts, along with letters of guarantee, claiming that Tawada Healthcare (who he represented as "Marc Alfredo") had the ventilators in stock and were ready to sell them. 

The French TextNow telephone number was listed as a reference account of a happy French customer who had worked with Marc Alfredo and had been pleased with the ventilators he had purchased. American customers purchased the ventilators from OBASI's "work-from-home" sales crew who received payments and then wired the money forward, less their commission, to OBASI's bank accounts in Hong Kong. 

Between March 2020 and April 2020, they prepared offer letters for $286,800,000 worth of Draeger ventilators!  $30,689,560 were actually sent to OBASI and his crew, solely by the State of New York!

SBA's COVID-19 EID Loan Program 

The third phase of OBASI's crimes was to steal the identities of American citizens, which they had in abundance because of all of the "job applications" that they had received.  Using this information, OBASI's crew then applied for money from the US Small Business Administration's EID Loan Program. The loan processor, based in Des Moines, Iowa, sent the funds to the "employee's" bank accounts, however the employees believed that these were also payments for Draeger ventilators being purchased from Tawada Healthcare, who they believed was their employer.  These funds were then forwarded to bank accounts operated by OBASI and others via Western Union or wire transfer to a bank account in Tangerang, Indonesia. 

55 fraudulent SBA COVID-19 EID Loan applications were paid out, each to a different stolen identity, totalling an additional $455,300 in fraud, of which $277,400 was successfully transferred to Indonesia. 

Domains used: 

mailzj-tainsong[.]com - used to spoof Tiansong Medican 

mailmedwowglobal[.]com = used to spoof MedWOW
alfredoluiz@mailmedwowglobal.com = (the Luiz Alfredo account) 

emailthc[.]com = used to spoof Tawada Healthcare 

863-855-3342 = a TextMe VOIP number (the "Alfredo Phone") 
marcalfredo@emailthc[.]com = the fake Marc Alfredo's email 
marca@emailthc[.]com = another fake Marc Alfredo email 

al694218933@gmail.com = spam accounts used to hire and interact with employees
mc00674709@gmail.com 
al4436621@gmail.com 
luizalfredo434@gmail.com
372221lzfre@gmail.com 
847273lzfre@gmail.com 
mlf02314141@gmail.com 
319marcdo@gmail.com 

abraham@cartufinanceservice.com = a fake account of "Bill Cartu" posing as a MedWOW customer 

Albert@bdicmail.com = a fake company "Albert Scott Breese / Black Diamond Investment Company of Santa Monica, CA" 

info@accdepartment.org = John Albin was an alias used by the Canadian Co-conspirator to communicate with "Marc Alfredo" regarding where checks should be sent.

fbi-fieldofficeny.com = used to fraudulently imitate the FBI

More Technical Details 

An example of the use of Snov[.]io was an email on 15MAR2020 sent to 162 US persons from 319marcdo@gmail.com asking "Hi, I'm wondering if you're getting my email regarding a contract position." 

If they replied, they would then received emails from "marcalfredo@emailthc[.]com" explaining more about the job at Tawada Helathcare, offering a 5% commission on any sales, and their role in receiving payments from North American customers. 

In order for the quotes being sent to look realistic, OBASI interacted with the real Tawada Healthcare, claiming to be "Dr. Collins" from the University of Rochester and asking for an Urgent quote for Evita 300 and Savina 300 ventilators. 

OBASI also contacted Draeger to get quote information, using the name "Collins Obasi" in the quote request and claiming to be an employee of Northwell Hospital.  In response to questions received from potential customers, he asked several more technical questions in future correspondence, 

Using these quotes as a template, OBASI crafted false quotes for among other things: 

20 ventilators to GUTHRIE for $340,000 
70 ventilators to GUTHRIE for $1,190,000 
35 ventilators to GUTHRIE for $595,000 
100 ventilators to NORTHWELL for $1,600,000 
500 ventilators to State of New York for $19,000,000 

KeyBank was one that challenged an outbound wire to the Bank of China HK LTD that was going to "Hong Kong Murphy Trading Co Limited." 

They received a reply stating: 

"I Surya Darma, accounts officer for Tawada Healthcare lakarta, Indonesia authorize that we did request funding of $12,637,660.00 to be wired to the Bank of China HK LTD for a beneficiary named Hong Kong Murphy Trading Co Limited. These funds are for a purchase order for ventilators by New York State Department of Health as delivery is of the utmost important due to the Covidl9 crisis. Please kindly expedite the wire urgently."

and .... they sent the money. (April 1, 2020) 

That same day "marcalfredo@emailthc[.]com" emailed an employee of the State of New York a signed purchase order for 2,000 Draeger ventilators from Tawada Healthcare for $38,004,000 and asked for a 50% deposit to be sent from the State of New York's KeyBank account (ending in 0026) to an "employee" account at KeyBank ending in 4326. 

A wire was sent by that employee on 02APR2020 to Bank of China HK LTD for $18,051,900 - the $19,002,000 requested minus the "employee's" 5% commission. 

Things get really crazy then when OBASI has one of his team make up an FBI Special Agent named Terrence Andrews, of the "International Funds Transfer Monitoring" department of the Albany Field Office asking him to call him back on OBASI's TextOne number to discuss "recent transactions and dealings with a foreign company.  That email came from "tandrews@fbi-fieldofficeny.com" 

Another co-conspirator then became "FBI Special Agent S.N. of Philadelphia" and instructed that they should only discuss the charges by reaching him at 267-792-1272 using passcode "Operation Covid19" and that they should not speak to anyone else at the FBI except him. 

SUMMARY OF CHARGES