PerspectiveCryptocurrency Laundering Is a National Security Risk
As U.S. adversaries get more acquainted with blockchain technology, their hostile cyber operations are likely to rely increasingly on cryptocurrency activity. And rogue states are likely to become more innovative in using cryptocurrencies as they try to dampen the impact of U.S. economic sanctions.
On 2 March, the U.S. Department of Justice indicted two Chinese nationals for allegedly laundering cryptocurrency on behalf of North Korea. The laundering scheme ferreted away part of almost $250 million worth of virtual currencies stolen from a cryptocurrency exchange in 2018 by the North Korean-affiliated Lazarus Group. Through elaborate software programming, the two Chinese nationals, Tian Yinyin and Li Jiadong, converted much of the stolen cryptocurrency into regular currency at Chinese banks, according to a U.S. Treasury announcement sanctioning them both.
Yaya J. Fanusie writes in Lawfarethat the case exemplifies how cryptocurrency obfuscation tools and techniques are likely to play a growing role in financing threats to U.S. national security.
As U.S. adversaries get more acquainted with blockchain technology, their hostile cyber operations are likely to rely increasingly on cryptocurrency activity. And rogue states are likely to become more innovative in using cryptocurrencies as they try to dampen the impact of U.S. economic sanctions.
A postmortem of the North Korean laundering scheme, outlined in the Justice Department’s asset forfeiture claim against Tian and Li’s virtual currency accounts, reveals a three-step formula for illicit finance: steal from exchanges, launder the digital currency and convert the tokens into real cash—hack, launder and cash-out.
He adds:
This nexus among cryptocurrencies, state-sponsored cyber operations and U.S. national security has also surfaced with other adversaries. Russian military intelligence officers laundered and spent $90,000 worth of crypto to support their cyber operations and information warfare during the 2016 U.S. presidential election, according to a separate Department of Justice indictment. And Iran’s growing tensions with the United States raise the possibility of the Iranian regime using cryptocurrency to fund information warfare.
National security officials must get smarter on cryptocurrency for the U.S. to combat the money laundering typologies emerging on blockchains rather than in banks. This means training analysts on blockchain technology and getting them acquainted with developments in the crypto space. And financial regulators will have to continually assess whether exchanges are effectively managing the risks from unhosted wallets.
