Hayato Shigekawa
As per the latest report by blockchain data platform Chainalysis, close to 68 per cent of public sector employees in Asia Pacific (APAC) see cryptocurrency as a vehicle mainly used by criminals and malicious actors.
The findings of the State of Cryptocurrency Investigative Report come as no surprise as the region’s crypto-friendly hub has become increasingly cautious following notable incidents of crimes.
The report specifically notes that Southeast Asia is becoming a fertile ground for criminals to exploit crypto for illicit activity and the rise in cyber threats and financial crimes contributed to a more pessimistic outlook on cryptocurrency.
In this interview, Hayato Shigekawa, Principal Solutions Architect at US-based blockchain analysis firm Chainalysis, discusses the findings of the report and trends in the cybercrime landscape in Asia Pacific and Southeast Asia.
Edited excerpts:
What are the key findings of the 2024 State of Cryptocurrency Investigative Report, and were there any surprising insights?
It is interesting to see that APAC respondents believe in cryptocurrency’s potential to enhance the global financial system, but they also acknowledge the growing abuse of crypto by criminals as adoption increases. The region also stood out in having a lower level of understanding of cryptocurrency; 42 per cent of respondents have no knowledge about cryptocurrency.
As cryptocurrency grows and becomes more entwined with the global economy, it’s increasingly used by good and bad actors. As such, we’re seeing it crop up in all forms of crime, not just crypto crime, such as ransomware and darknet markets. In this area, the APAC region mirrored global trends.
The three types of crime involving cryptocurrency are financial fraud, scams, and cybercrime. While APAC responses were mostly in line with those from other regions, a disproportionate share of respondents from the region named cybercrime and threat finance as forms of crime where they’ve encountered cases with a crypto nexus.
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An interesting finding from our survey is that while all regions recognise the importance of addressing crypto-related crime, respondents from APAC and Latin America feel their agencies are not well-equipped for these investigations, citing a lack of staffing and technical resources.
Nearly half of APAC respondents said they were either extremely dissatisfied or somewhat dissatisfied with their agency’s staffing resources available for crypto investigation and the agency’s access to investigators that specialise in cryptocurrency. When it comes to technological resources available to adequately investigate crimes involving crypto, APAC had similar dissatisfaction rates levels to EMEA, but with more respondents being neutral, suggesting uncertainty or lack of access to adequate.
The report states that 67.7 per cent of respondents from APAC see cryptocurrency as a vehicle mainly used by criminals. What factors do you believe contribute most to this perception?
It is a common misconception that crypto is used primarily for illicit activity. Like with many new technologies, criminals were early adopters of cryptocurrencies, and their initial embrace has helped shape its overall reputation.
Although it is more well-known that cryptocurrency is traceable today, criminals still use it for the same reason people use crypto for legitimate purposes: it’s instantaneous, cross-border and liquid.
Chainalysis identifies Southeast Asia as a hotspot for crypto-based crime. Can you elaborate on the specific types of crime most prevalent in the region?
Southeast Asia is a hotbed for cryptocurrency activity, with many engaging in it at the grassroots level—four out of the top ten countries in our Global Cryptocurrency Index 2023 are in this region.
From everyday activities such as remittance payments to recreational online gaming, cryptocurrency is serving the various needs of users across a diverse region. While cryptocurrency adoption continues to grow, the risk of crime will, too, as bad actors find new technologies to exploit.
We are observing a distinct cybercriminal ecosystem develop in the region, including romance scams/pig butchering compounds and business conglomerates that operate different types of illicit services, including those that facilitate cybercrimes. (Romance or pig butchering scammers build a relationship over time with their victims and fatten up them to extract the most possible value).
How significant is the role of education and awareness in shaping public sector perceptions of cryptocurrency, and what steps can be taken to improve this?
To better investigate, resolve, and prevent cryptocurrency crimes, law enforcement agencies first need to understand them. Many people don’t understand that cryptocurrency is incredibly transparent—it operates on public immutable blockchain ledgers—and anyone could look up the entire history of transactions using a public block explorer. The problem is that it’s tough to read the blockchain. It looks like just a bunch of random numbers and letters transacting with a bunch of random numbers and letters, and that doesn’t mean very much to most people.
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That’s where blockchain analysis comes in handy. Blockchain analytics tools such as Chainalysis map those random numbers and letters – cryptocurrency addresses – to their real-world services.
Education plays a critical role in shaping perceptions of cryptocurrency, and there are several platforms and forums for law enforcement agencies to be trained.
How can the APAC region balance the growth of its cryptocurrency economy with the need to prevent and combat crypto-related crimes?
Regulations will play a key role in enabling the responsible innovation and growth of the cryptocurrency economy. Greater regulatory clarity in the crypto space has fostered the responsible growth of the ecosystem by ensuring the presence of regulated players who innovate responsibly.
We are already seeing key markets in APAC, including Singapore, Hong Kong, Japan, South Korea, and Australia, work on their digital assets regulatory frameworks, providing greater clarity for the ecosystem and its players to innovate safely.
The industry players also have a role to play—public and private sector collaboration will be critical to combatting crypto crime. We have seen success when the public and private sectors have worked together through the use of blockchain analysis to take down crypto crime, and we hope to see many more such successes in the future.
Given the current trends, how do you see the perception and usage of cryptocurrency evolving in APAC over the next few years?
Asia is home to one of the fastest-growing cryptocurrency regions in the world and many of the top countries by grassroots crypto adoption— and we expect this trend to continue. For the cryptocurrency economy to continue to advance safely, it will be critical for public sector agencies to bridge the gap and invest in resources, expertise and training for law enforcement officials to combat these crimes as effectively and efficiently as any other form of crime, if not more so.
Looking ahead, what are some key steps that APAC governments and public sector institutions can take to improve their response to crypto-related crime?
In addition to educating law enforcement professionals, governments and public sector agencies can invest in blockchain analytics tools to effectively combat crypto crime. These tools help law enforcement progress investigations, apprehend criminals, present cases for prosecution, and prepare the way for the seizure and recovery of crypto funds to victims when possible.
Blockchain analytics also facilitates faster and more effective collaboration between law enforcement departments and government agencies during an investigation. Using the same dataset contributes to a shared understanding, which drives better investigative outcomes.
Also Read: Digital scams are on the rise – Is Asia ready for the fight?
While blockchain intelligence helps fight crime, it can also help law enforcement proactively prevent crime. By analysing on-chain transaction patterns and relationships that could indicate criminal behaviour, illicit activity can be detected early on.
While blockchain analytics tools are incredibly useful, agencies also need to invest in human resources and expertise that know how to use them. As we’ve seen in our report, the blockchain industry is a fast-moving space, and law enforcement officials need subject matter experts to make the most of their investments in blockchain analytics tools.
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Image Credit: Chainalysis
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