Scouring Eastern Europe’s Crypto Crime Landscape: A Report

https://thefintechtimes.com/scouring-eastern-europes-crypto-crime-landscape-a-report/
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Addresses based in Eastern Europe have the second-highest rate of exposure to illicit addresses; behind only Africa.

This is according to a recent study into the plight of crypto-crime in Eastern Europe by the Blockchain data platform Chainalysis. Here, we’ll be diving head-first into the report, and uncovering the true state of illicit activities in the region.

Upon first glances into the data, it’s clear to see that Eastern Europe boasts the second-largest level of exposure to illicit addresses in the world; being overtaken only by the African region.

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The report is keen to take note that Eastern Europe has a much larger overall cryptocurrency economy than Africa, as well as Latin America, the third-ranked region for overall exposure to illicit activity. In fact, Eastern Europe is the only region with a total transaction volume of $400 million or more for which illicit activity makes up more than 0.5% of total cryptocurrency value sent and received.

In terms of raw value, Eastern Europe has sent the second most cryptocurrency of any region to illicit addresses, behind only Western Europe.

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One element that stands out from the Chainalysis data is that Eastern Europe sends more cryptocurrency to darknet markets than any other region. This is largely due to activity involving Hydra Market. Hydra is the world’s biggest darknet market and caters only to users in Russian-speaking countries throughout Eastern Europe.

However, as is the case with all regions, scams make up the biggest share of funds sent from Eastern Europe to illicit addresses — we can assume that most of this activity represents victims sending money to scammers. Between June 2020 and July 2021, Eastern Europe-based addresses sent $815 million to scams, second only to Western Europe.

Eastern Europe also sent the most web traffic to scam websites during the time period studied by a wide margin.

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Drilling down to the country level, we see that Ukraine accounted for most of this activity, and sends more web traffic to scam websites than any other country, more than doubling the total web visits of the second-ranked country.

What scams are victimising cryptocurrency users in Eastern Europe? More than half of the value sent to scam addresses from the region went to one scam: Finiko.

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But who are Finiko and how are they drawing in so much crime-related value?

Finiko was formerly a Russia-based Ponzi scheme. But following their collapse in July 2021, which resulted in many users reporting that they could no longer withdraw funds from their accounts with the company, Finiko invited users to invest with either Bitcoin or Tether, promising monthly returns of up to 30%. They eventually launched their own coin that went on to trade on several exchanges.

According to the Moscow Times, Finiko was headed up by Kirill Doronin, a popular Instagram influencer who has been associated with other Ponzi schemes. The article notes that Finiko was able to take advantage of difficult economic conditions in Russia exacerbated by the Covid pandemic, attracting users desperate to make extra money. This insight from the Chainalysis Reactor demonstrates just how prolific the scam was.

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Between December 2019 and August 2021, Finiko received over $1.5 billion worth of Bitcoin in over 800,000 separate deposits. While it’s unclear how many individual victims were responsible for those deposits or how much of that $1.5 billion was paid out to investors to keep the Ponzi scheme going, it’s clear that Finiko represents a massive fraud perpetrated against Eastern European cryptocurrency users, predominantly in Russia and Ukraine.

Eastern European addresses also receive a great deal of funds from scam addresses, suggesting that many scam operators in addition to victims are located in the region.

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The chart above shows how the regions receiving the most cryptocurrency value from scams have changed over the last year. During that time period, Eastern European addresses have received roughly $950 million worth of cryptocurrency from scam addresses, putting it behind only Western Europe. However, Eastern Europe’s monthly totals have climbed steadily since March 2021 as Western Europe’s have dipped, allowing Eastern Europe to surpass Western Europe in cryptocurrency received from scams in June. Again, Finiko accounts for more than half of that transaction value.

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Eastern Europe-based addresses have also received significant funds from addresses associated with ransomware at $46 million, behind only Western Europe at $51 million. However, the data puts forward the point that at least a portion of the ransomware funds labelled as traveling to Western Europe should likely be attributed to Eastern Europe. Chainalysis’s geographic attribution is based on web traffic to cryptocurrency services, so in cases where two regions use many of the same services, it’s more difficult to attribute transaction volume to the correct service.

This point is supported by the matrix below. The matrix represents which regions have the heaviest overlap in this regard, with each cell showing the number of services for which the region in the column is ranked first in web traffic, and the region in the row is ranked second in web traffic.

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Unsurprisingly, Eastern Europe and Western Europe have the highest overlap of any two regions, with 160 services for which Western Europe is first in web traffic and Eastern Europe second, and 68 for which Eastern Europe is first and Western Europe is second. Because of that, it’s likely that some of the cryptocurrency value labelled as traveling from ransomware addresses to Western Europe is in fact traveling to Eastern Europe.

How can we be so sure that this trend is correct?

It’s been heavily documented that many of the most prolific ransomware strains are associated with cybercriminal groups either based in or affiliated with Russia, such as the notorious Evil Corp, whose leadership reportedly has ties to the Russian government.

However, there’s another way to get a sense of how much ransomware activity Eastern European cybercriminals are responsible for besides looking at where ransomware operators send funds to cash out. Many ransomware strains affiliated with Russia and other Eastern European countries have code that prevents them from being deployed against operating systems in detects as being located in a Commonwealth of Independent States (CIS) country — the CIS is an intergovernmental organisation of former Soviet states.

The chart below quantifies how much of each year’s total ransomware revenue went to strains either associated with Evil Corp or that have code designed to avoid CIS countries from 2018 to the present.

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Overall, for the time period studied, ransomware strains associated with Eastern Europe for the top ten strains account for 90% of all ransomware payment volume, a share that has been growing year on year. The data makes it clear that an important step in the ransomware battle will be to work with law enforcement in Eastern European countries to disrupt local ransomware operators.

  • Tyler is a Fintech Junior Journalist with specific interests in Online Banking and emerging AI technologies. He began his career writing with a plethora of national and international publications.

https://thefintechtimes.com/scouring-eastern-europes-crypto-crime-landscape-a-report/