Year After Demonetisation, Black Money Reborn as Cyber Cash

Year After Demonetisation, Black Money Reborn as Cyber Cash

THEY USED a voice-over-internet service running from a mobile phone. They took care to call from different towns and cities each time, only powering on for the time it took to negotiate. Perhaps most important, what the kidnappers wanted in return for their victim’s life didn’t exist, except as a string of digits in cyberspace.

Even as Ashu Jain’s family struggled to raise Rs 2 crore, to be paid online in a digital cryptocurrency, police also despaired. The absence of physical contact to exchange the ransom made it impossible to use surveillance against the perpetrators — and only too easy for them to take the money, and kill their victim.

“The best shot, usually, is to pay the ransom, and then track it. I spoke to every cryptocurrency expert I could locate, but got only one answer: there was no way we’d be able to trace who the money went to,” says Punjab Police DIG Sukhchain Singh Gill.

India’s intelligence services, sources told The Indian Express, have warned the government that the kidnapping — India’s first for-cryptocurrency violent crime — could mark the birth of a new national security threat. At a recent meeting, government sources said, Finance Minister Arun Jaitley was told that rupees owned by criminal syndicates, drug traffickers, or tax-evaders, could now be turning digital.

This new gold is safe to store, can move anonymously, and is immune to control by a government or other any kind of central authority. High demand for bitcoin in India has driven its price in the country far higher, even, than global rates: this Monday, the virtual currency was selling at rupee exchanges for Rs 585,361 or $9019.44, almost $1,000 over the $8221.80 price in the United States. From November 28, 2016, the day India demonetised its Rs 500 and Rs 1,000 notes, the demand for bitcoin, the best known kind of cryptocurrency, has surged from $731.84 to a staggering $8,155.83, according to CoinGecko — a rate of return that is unmatched.

The surge is so powerful that the Niti Ayog has been been asked to study the possibility of following countries like Russia to issue its own, government-backed and regulated cryptocurrency — tentatively code-named Dakshin, government sources said.

Indians appear to be following the global cryptocurrency boom in part because of the profits, but also because of the loss of faith in cash, as well as the flatlining of property and gold prices, precipitated by demonetisation. “Frankly, demonetisation shattered my faith in cash. Cryptocurrency gives a much better return than anything else — and it’s a whole lot more safe from tax raids,” says a New Delhi-based garment exporter who now keeps significant bitcoin holdings.

Larry Fink, the chief executive of BlackRock, the world’s largest investor, told Bloomberg earlier this year that the price of Bitcoin was “just identifies how much money laundering there is being done in the world”. He argued that the alt-currency’s record prices were being driven by “how much people are trying to move currencies from one place to another”.

For law enforcement, this is bad news. “The ease with which cryptocurrency allows dirty money to be moved around raises hard questions our future ability to monitor funding for terrorism and organised crime,” says an intelligence officer familiar with the consultations.

Even though India is a small market for cryptocurrency — ranking 19th worldwide according to monitoring service Cryptocompare, with trades valued at ₹139,467,052.15, or a mere 0.5% by global value over the 30 days to November 21 — many believe the figures are understated.

“There are Indians buying through friends or business associates or proxies abroad. This doesn’t show up in the business of Indian exchanges,” says a senior government official.

ZebPay, India’s largest exchange, has reported its user-base has doubled in the last three months, while UnoCoin says its user-base has gone up from 100,000 to 500,000 this year. “It’s silly to ban cryptocurrency because it is being used for money laundering or some other criminal activity. After all, so is cash. But there are some unique challenges here no one is on top of,” says the intelligence official.

‘Money harder to track’

Late in June, three weeks after Ashu Jain disappeared, the Punjab Police succeeded in rescuing him through some old-fashioned legwork, checking dozens of possible sites in the Amritsar area. Interestingly, the kidnappers did not have specialist skills, garnering their knowledge through online research alone. Deepak Sharma, facing trial for his alleged role in the crime, had worked installing fiber-optic wiring for telephone towers, and servicing cash-machines. The other four men had no computer-related skills at all.

“It’s more than possible there’s a lot more criminal activity that has moved towards bitcoin, because of its speed and anonymity. The technology helps reduce risks for criminals, and is easy to use,” says DIG Gill.

Ever since 2014, when the FBI shut down dark-web sites where buyers could use bitcoin to buy drugs, computer hacking software, and false identification, the dangers of cryptocurrency have been well known. Less well known, though, is that successors to the sites that were shut down — SilkRoad, Cloud9 and Hydra — have sprung up again. AlphaBay, the latest to be targeted by law enforcement, had 50,000 listings for narcotics, and another 12,000 for fraud tools, like stolen credit card accounts.

The world of the darknet is a dangerous one — markets like Abraxas, Amazon Dark, Blackbank and Middle Earth have disappeared into cyberspace, with their customers’ cash — but the online drug trade is still estimated at $100 million worth of cryptocurrency each year.

Law enforcement in India has had few encounters with cryptocurrency so far — and bitcoin trade is currently in a legal grey zone, with no clear regulations governing it. But the signs are criminals have begun to understand the possibilities of the technology.

In August, hackers held the data of a Mohali business hostage, demanding a five Bitcoin ransom. Bengaluru-based information technology giant Wipro, too, received hacking threats from criminals seeking protection money in Bitcoin.

The most serious event was a ransomware attack on AP Moller-Maersk, which operates the Gateway Terminals India at Jawaharlal Nehru Port Trust, by cyber-criminals. Few details were made public, but a Ukrainian company targetted by the same criminal syndicate said they had sought $300 million in bitcoin.

Police officials in Mumbai told The Indian Express they believed cryptocurrencies offered organised crime and narcotics groups relatively secure ways to move funds. “There are a whole group of industries, from film to property, that have been targeted over the years, and this makes moving money around that much harder for us to track,” says a senior officer.

In a 2017 appraisal, the US Department of Justice flagged cryptocurrencies as an “emerging as a money laundering threat”, noting that they enabled transnational criminal organisations to “easily transfer illicit proceeds internationally”.

Official cryptocurrencies soon?

FOR INCOME-TAX authorities around the world, too, cryptocurrencies are posing a major challenge. Last year, the US Internal Revenue Service sought records of “all customers who bought virtual currency from the company from 2013 to 2015”, from Coinbase, the country’s largest cryptocurrency exchange. This followed revelations of large-scale under-reporting.

Global gambling, too, has been quick to embrace cryptocurrency. The technology allows users to gamble without the need to handing over bank or credit card details, lowers fees and allows for almost instant deposit times.

Efforts to block alt-currencies, though, have had little success. Last month, China banned mainland residents from trading in cryptocurrencies on exchanges and made it illegal for Chinese start-ups to raise funds through so-called Initial Coin Offerings — in effect, private cryptocurrencies that represent a hybrid of crowdfunding and Initial Public Offerings.

Though the bitcoin market crashed for some weeks, prices and volumes in China have surged again, with investors finding ways to evade the restrictions.

Faced with similar problems, other governments have taken a very different road: central banks in Russia, Sweden and Lebanon are considering issuing official cryptocurrencies — the same idea that India’s possible Dakshin experiment may lead towards.

The village of Nishiawakura in Japan is planning to issue its own cryptocurrency, in a bid to revitalise its economy, following on Tokyo’s decision to lift a ban on trading.

Source: IE