Seminar Sidelights | Practical Analysis of Virtual Asset Crimes: Cryptocurrency Flow Tracking

I. Analysis of Cryptocurrency Flows and Legal Defenses of Fraud Syndicates

(1) Issues Involving Cryptocurrency Dealers?

1. Fake Cryptocurrency Dealers

Fake dealers refer to situations where cryptocurrency trading services are exploited by fraud syndicates, with cash couriers, dealers, and the syndicate collaborating across three tiers to commit fraud and money laundering.

A. How to make a determination?

a. Objective evidence investigation: Through multi-tiered cryptocurrency flow queries, it can be verified whether the [cryptocurrency dealer defense] raised by the defendant/witness/suspect is consistent. Simultaneously, by questioning specific dealers regarding cryptocurrency flows, one can assess whether their statements are credible.

b. Subjectively determining whether a dealer is genuine or fake:

(A) Lack of regular transactions; transactions are mostly ad hoc.
(B) Transaction counterparts (wallet addresses) are fixed to a limited, single-digit number, which may belong to human heads or cash couriers of the fraud syndicate.
(C) Inability to clearly specify which trading platform is used when asked.
(D) Inability to clearly explain transaction models or provide itemized explanations of individual transaction records.
(E) Absence of sales contracts or other written/related records proving a commercial relationship between the dealer and specific buyers or sellers.
(F) Absence of tax filing records for the dealer (if it is a company); if none exist, it may be a fake dealer.
(G) Whether a legal anti-money laundering declaration for virtual currency platform and transaction business has been filed; if so, it may be presumed to be a legitimate dealer.

2. Over-the-Counter (OTC) Transactions

All fund flows of cryptocurrencies can be tracked. For instance, if USDT is stolen from an exchange, these funds will be flagged as "dirty money" and rejected by other financial institutions. Transacting with OTC dealers carries a very high probability of acquiring dirty money.

(2) Tracking Suspicious Transaction Flows:

1. Querying Wallet Profiles:

There are numerous cryptocurrency tracking systems on the market that utilize public blockchain ledgers to analyze coin flows and uncover the actual fund movements of relevant wallets.

Taking the cryptocurrency tracking website Bitquery as an example (which clearly displays when a wallet was created, daily incoming and outgoing amounts, and individual transaction details):

Each blockchain has its own functions and architecture. For example, Bitcoin features a specific change-return mechanism where a single Bitcoin is automatically split into three equal parts, generating a total of three wallet addresses—the main wallet and change wallets—to protect privacy.

2. Multi-Tiered Cryptocurrency Flow Queries:

Using cryptocurrency tracking systems to target a specific wallet for downstream queries. Taking Address B as an example, if it is discovered that Address B has previously interacted with an exchange wallet, it indicates that Address B is likely a user of that exchange.

In accordance with current international trends in implementing anti-money laundering measures, all exchanges enforce user real-name verification (KYC). Therefore, by having judicial authorities officially inquire with specific exchanges or through international judicial mutual assistance in crime prevention and investigation, the real-name registration data of natural persons associated with specific wallets can be obtained.

If the wallet addresses of perpetrators or victims can be obtained, through the aforementioned cryptocurrency analysis and cross-matching of fund sources, specific wallets used by suspected criminals can be located. Furthermore, through cooperation with exchanges, there is an opportunity to obtain the real-name identity data of the perpetrators.

II. Tracking Tools:

(I) OKLink, SlowMist, Chainalysis, Hash Trace, Tokenview, Ledger, hub wallets, and exchanges.

(II) Binance Exchange

How to contact Binance? One must first apply for verification through Binance's "Law Enforcement Request System" and then email the relevant materials to casecn@binance.com.

III. Conclusion

The blockchain is divided into the decentralized world and the centralized world.

The decentralized world emphasizes privacy. For instance, cryptocurrency mixers make coin flows untraceable, Monero transforms wallets into anonymous forms, and some even adopt wallet currency-value hiding systems. None of the aforementioned criminal proceeds can be recovered.

The centralized world emphasizes crime prevention. Domestic exchanges and Binance provide channels to recover criminal proceeds; however, for foreign exchanges, since only a few have signed judicial mutual assistance agreements with Taiwan, it is difficult to freeze such assets and recover the criminal proceeds.