Cyber Criminals Launder Billions with Bitcoin, In-game Loot

Cyber criminals are laundering billions of ill-gotten gain using crypto currencies like Bitcoin and Monero and in-game currencies for popular online games like World of Warcraft, FIFA Soccer and Grand Theft Auto. 

Research sponsored by the security firm Bromium and conducted by researchers at Surrey University in England found that cyber criminals have embraced both crypto currencies and massively multiplayer gaming platforms as they look to convert the proceeds of illegal schemes into tangible assets like cash, cars and real estate.

The report which will be released next month surveyed both public information and law enforcement officials and data sources, according to Dr. Mike McGuire, a Senior Lecturer in Criminology at Surrey University. The goal of the project was to estimate the size of the cyber crime problem by determining how cyber criminals were spending their ill gotten gain. The researchers also reviewed the testimony of cyber criminals describing their activities.

The report identifies a number of revenue sources for cyber criminals, including illicit online marketplaces where criminals sell drugs, weapons, stolen data and other goods.

“The question was: ‘if they make money, what do they do with it before they spend it,'” McGuire told The Security Ledger.

The answer was that they launder it through various means, many similar to traditional money laundering methods. McGuire estimates that between $80 billion and $200 billion of illicit funds may be laundered each year using the various methods, including the use of casinos to laundered stolen funds, the use of human “mules” to move money, the creation of shell companies and money transfers using Western Union.

“These are methods that the mafia of the 1940s or 50s would have been very familiar with,” he said.

But cyber criminals have also been early adopters of new technologies and platforms that facilitate money transfers outside of the watching eye of authorities, banks and banking regulators. Among those were electronic payment systems like Paypal, as well as crypto currencies such as Bitcoin and Monero, which cyber criminals have gravitated to because they promise anonymity. While platforms like PayPal have taken steps to cap the amounts that can be transferred electronically, cyber criminals have adapted to those practices, using kiting and “micro payments” that break up big transfers into hundreds or thousands of smaller transactions.

The virtual currencies have had a profound effect on the criminal underground since they emerged close to a decade ago. The use of crypto currencies is fairly small as a percentage of global money laundering: around 4% of global laundered funds – or $40 billion to $80 billion in laundered crypto currencies annually.

“Cyber criminals latched onto BitCoin very early on as the dream medium both for seed payments and then as a way to move (money) around,” he said.

The use of the virtual currencies spread from crime ware sites to other applications starting around 2010, McGuire said. Today, cyber criminals can use virtual currency to make property purchases to convert illegal proceeds into legitimate cash and assets, including penthouse suites and lavish mansions to 160-acre private islands, the report found.

“They’re keeping their money by buying objects, which is a way of laundering – obviously – but also a way to diversify their investments,” he said.

Still, as hype has built around crypto currencies like BitCoin, criminals have migrated to less well known platforms, he said.

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In general, criminals don’t like to be on any platform that people are talking about,” McGuire said.

In addition to crypto currencies. cyber criminals have also landed on in-game purchases of goods and currencies as a way to move money safely around the world out of sight of banks and regulators. McGuire said gaming-related laundering is very common in China and South Korea, with individuals using game platforms to move money across borders in the shape of virtual goods. The growth of so-called “in app purchases” has accelerated the use of gaming platforms for laundering money.

“Anything that can be used as a money transmitter is of interest to criminals as a form of laundering.If you can convert it out of the game and into the real world, then you’ve got a perfect mechanism (for laundering),” he said.

The U.S. Government recognized as much, declaring in 2013 that crypto currency exchanges and in-game purchases that generate real-world profits are taxable events.

The message for law enforcement is dire. The scale of online money laundering is not well known. And, while law enforcement may have ways to track virtual currency payments, McGuire said the spread of virtual platforms is straining the ability of law enforcement and regulators to stay on top of money laundering activity.

“They don’t have time to look at what’s going on with these platforms,” McGuire said. “It’s pretty crazy out there at the moment,” he said.