Alabama's Regulators Use Cryptographic Hashes to Preserve Evidence Regarding Crypto-Related Scams

  • US state of Alabama's regulators have served about 20% of total cease-and-desist orders (in the US) sent to potentially fraudulent crypto-related firms.
  • Regulators use advanced VPN programs and cryptographic hashes to track and record information found on suspicious cryptocurrency-related websites.

Greg Bordenkircher, the first assistant at the United States Attorney’s office, has revealed that the US state of Alabama “issued nine orders shutting down businesses that [were] advertising” potentially fraudulent investment schemes, services, and products.

Bordenkircher added that Alabama has so far “got about 20 percent of all the active cease-and-desists” out of all 50 US states. Moreover, there are “another 20, 22” potential crypto-related scams that Alabama’s regulators are currently investigating, Bordenkircher told Coindesk.

Coordinating Investigations

Notably, Bordenkircher is part of what’s considered the largest cryptocurrency crackdown in history - which was initiated in May 2018 by the North American Securities Administrators Association (NASAA), an international organization focused on investigating financial crimes.

The primary target of these wide-reaching probes has been the large number of fraudulent initial coin offerings (ICOs). Regulators in other US states including Texas, Colorado, South Carolina, and Massachusetts have also joined the extensive investigations into crypto-related scams.

Additionally, authorities from Canada are involved in NASAA’s efforts to combat the criminal elements operating in the fragile crypto industry. When the investigation began (toward the end of May 2018), approximately 300 cryptocurrency projects had been identified as potentially fraudulent schemes.

State-Level Regulators Play Equally Important Role As Federal Authorities

However, authorities have now learned that some of these were not scams, and there are currently about 200 different crypto-related businesses under investigation, NASAA’s officials noted.

Acknowledging the efforts of the US Securities and Exchange Commission (SEC), while also clarifying the important role state-level regulators play in clamping down on illicit activity, Bordenkircher said:

The SEC does a great job and CFTC does a great job, but the states have really got the boots on the ground. There’s more of us than there are of them.

Greg Bordenkircher

To more effectively crack down on scams, state-level and federal authorities have been coordinating their investigations by sharing critical information, Bordenkircher explained. He also noted that “it’s almost a task force view of all of us coordinating together.”

Using Cryptography To Record Tamper-Proof Evidence

Because the majority of crypto-related activity is conducted via the internet, Alabama’s regulators are working with Cyber Forensics, a consultancy that assists regulators in organizing the digital evidence accumulated during investigations - in order to present it during court hearings.

Notably, security officials working at the state-level have set up computer networks that are running advanced VPN programs, so that they can easily visit suspicious websites - without anyone being able to track their activity.

Cryptographic hashes are also used to preserve the content found on websites. The hashes are then used to verify that the data was actually logged at a particular time, and to also prove that the information was not altered.

After the required evidence has been gathered, regulatory authorities take down the fraudulent websites completely - in order to protect consumers.

UK Opens $130,000 Contract to Catch Crypto Tax Evaders

  • The HMRC has opened a contract worth £100,000 for the creation of software that can detect crypto tax evaders.
  • Special preference is being given for tools targeting privacy coins such as Monero.

The United Kingdom has offered a contract worth £100,000 ($130,000) for software that can identify when cryptocurrency is used to avoid paying taxes. 

According to the contract posted by HM Revenue & Customs (HMRC), the organization is seeking a tool that will “support intelligence gathering methods” for identifying and clustering cryptoasset transactions and linking to their service providers.

The contract claims the tool must be capable of tracking bitcoin, bitcoin cash, XRP, USDT, ethereum and ethereum classic. Preferential treatment will be given to developers capable of creating a tool that can analyze private cryptocurrencies, such Monero. 

The contract reads, 

Crypto assets, such as Bitcoin and Ethereum, provide a means to transfer value between interacting parties.  Also known as virtual and crypto currencies, these services are increasingly used for a range of purposes, from international money transfers, sales of digital services, paying staff and tax evasion and money laundering.

HMRC is one of the UK’s largest organizations, with 60,000 full-time equivalent staff working to collect taxes.

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