An investigation by the United States’ Homeland Security Investigations (HSI) and the Brazilian Federal Police led to arrests in connection to an international crypto fraud ring.
The fraud ring was based in Curitiba, Brazil. The ringleader was an unnamed 37-year-old former resident of the United States who had moved to Brazil. Twenty search and seizure warrants were executed in the Brazilian states of Parana, Santa Catarina, Sao Paulo and Rio de Janeiro in a sting dubbed Operation Poyais. The suspects may face charges related to their alleged violations of Brazilian criminal statutes, which include international money laundering, operating a criminal enterprise, fraud, and crimes against the national financial system.
“This successful operation shows the importance of international collaboration when it comes to disrupting criminal organizations operating in multiple countries around the world,” said HSI Brazil Acting Attaché Eric Cardiel in a statement announcing a successful investigation.
The United States’ role involved investigating allegations that the crime ring defrauded investors in at least a dozen countries. The suspects claimed to have developed crypto-related financial products. They advertised fake licenses and cryptocurrencies that they had created, which ultimately tanked in value.
During or before January 2022, the ringleader moved from the United States to Brazil, likely hoping to skip out on consequences and take his illicit earnings with him. The HSI asked for help from the Brazilian Federal Police, who found that the crime ring also conducted similar illegal activities in Brazil. At least 4 billion Brazilian Reais ($800 million) in illicit funds moved through the Brazilian banking system. The HSI did not specify how much in illegally gained cryptocurrency moved through the crime ring’s hands.
HSI divisions involved in the case included HSI New York El Dorado Task Force, HSI Brazil, and HSI Orlando. The New York City Police Department, the New York City Sheriff’s Office, and the State of Florida’s Office of Financial Regulation also assisted with the United States’ side of the investigation.
Looking at the Statistics
While the HSI did not specify that Chainalysis was involved in the case, Chainalysis can track cryptocurrencies moving to and from addresses flagged as involved in illicit activity. Its 2022 Crypto Crime Report indicates that illicit addresses received $14 billion in illegally gained crypto in 2021. Total crypto transaction value – both legal and illegal – totaled $15.8 trillion in 2021.
2021 statistics indicate that money laundering accounted for between 2% and 5% of the global GDP for 2021. That’s between $800 billion and $2 trillion in U.S. dollars. In the United States alone, $300 billion might have been laundered last year.
Banks are legally required to combat money laundering by following KYC/AML regulations. If they don’t, they can face fines. In fact, the United States levied 25 penalties totaling $2.29 billion for violations of AML regulations in 2019. In 2020, the United States issued fines totaling $4.3 billion for AML violations.
The obvious conclusion is that money laundering makes up a small, if noticeable, percentage of total money laundering activity that occurs every year. If a politician makes noise about illicit activity in the crypto world, it might be worth taking a closer look at his or her campaign donors. You’d probably find a few “mainstream” financial institutions that see the digital asset industry as a competitor on that list.
This most recent cracking of an international crypto fraud ring could be taken as additional proof that just using crypto – or, in this case, hopping international borders in an attempt to evade the law – is not enough to protect violators of the law from prosecution.