“Bitcoin Maven” Theresa Lynn Tetley Sentenced To 12 Months Jail For Money Laundering

By Yuri Besmanoff

Theresa Lynn Tetley, the so-called “Bitcoin Maven,” who admitted to running a Bitcoin-for-cash exchange business without a license, as well as laundering Bitcoin purchased from the proceeds of drug trafficking, was last week sentenced to 12 months and one day in federal prison and also fined $20,000.

The Downfall Of The Bitcoin Maven

She reveled in being known as the “Bitcoin Maven,” a moniker she gave herself because of her deep knowledge of cryptocurrency. That knowledge enabled her to make a substantial amount of money in a shorts space of time.

However, this week, Theresa Lynn Tetley, aged 50, of Southern California, who in a former, less complicated life had been a stockbroker and real estate investor, pleaded guilty to one count of money laundering and one count of operating a money transmitting business without a license, and was sentenced to 12 months in prison by US District Judge Manuel L. Real.

The official charge was conducting an illegal business and engaging in unlawful monetary transactions involving Bitcoins. Tetley was also ordered to forfeit some 40 Bitcoin, worth around $250,000, to forfeit $292,264.00 in cash, as well as 25 assorted gold bars (worth around $12,500) that were deemed to be the proceeds of her illegal activities.

Between $6-$9.5 Million In Illegal Transactions

The court heard how Tetley ran a Bitcoin-for-cash exchange platform without first registering with the Financial Crimes Enforcement Network (FinCEN). She had also failed to implement anti-money-laundering mechanisms such as customer due diligence, and had failed to report certain transactions required for these types of businesses.

Tetley advertised on the website LocalBitcoins.com, and took part in illegal transactions that totaled between $6-$9.5 million. Her customers were almost all from the United States. Ironically, clients that used her exchange received no special favors, as Tetley actually charged higher rates for Bitcoin transactions than legal exchange platforms do.

Laundered Drug Money Earned On The Dark Web

The most serious offence – at least in the eyes of the public – was that Tetley knowingly laundered funds from an individual suspected of receiving Bitcoin as payment for selling drugs on the “Dark Web.” During the investigation, an undercover agent representing himself as a drug trafficker successfully swapped Bitcoin for cash using Tetley’s exchange platform.

According to sentencing documents, the prosecution had successfully argued that:

“In light of the growth of the dark web and the use of digital currency, unlicensed exchangers provide an avenue of laundering for those who use digital currency for illicit purposes. Tetley’s business fueled a black-market financial system that purposely and deliberately existed outside of the regulated bank industry.”

The case against Tetley was the first of its kind in the annals of the Central District of California.

‘Bitcoin Maven’ Jailed for Multi-Million Dollar Bitcoin-for-Cash Money Laundering Operation

By AJ Dellinger

Bitcoin has lost most of its (likely inflated) value in the last few months, but it still has plenty of value for law enforcement agencies looking for financial crimes to punish. The latest cryptocurrency criminal to get the book thrown at them is “Bitcoin Maven,” a 50-year-old woman who ran a bitcoin-for-cash exchange operation.

The Department of Justice announced Theresa Lynn Tetley, a former stockbroker and real estate investor, was sentenced to 12 months and one day in federal prison this week for operating an unlicensed money transmitting business and money laundering. She was also ordered to forfeit 40 Bitcoin (valued at about $250,000), $292,264 in cash, and 25 gold bars acquired through her illegal business.

Tetley’s scheme, highlighted by Ars Technica, involved offering people Bitcoin in exchange for cash, which on its face probably doesn’t sound like much of a crime. But Tetley did everything off the books. She failed to register her operation as a money services business and didn’t offer any sort of “anti-money-laundering mechanisms,” per the Justice Department.

Most of Tetley’s transactions were completed in person, with cash being provided for the virtual currency. She advertised her service through localbitcoins.com, a site that facilitates such exchanges, where she posted under the name “Bitcoin Maven.” She lived up to it, too; According to the DOJ, she exchanged $6 and $9.5 million over the course of several years.

Her undoing came when she began unwittingly started doing business with an undercover agent from the Drug Enforcement Administration. The agency started closing in on her in 2016, and dragged her along for nearly a year as they built a case against her.

The plan to bring Tetley down included introducing a second agent, posing as the first agent’s boyfriend, to conduct a number of large transactions with the Bitcoin Maven. According to Ars Technica, at one point the fake boyfriend informed Tetley that he possessed a large supply of “coke, meth, and weed” that had been “stolen” and was selling that stash for the bitcoin he was trading with her. Tetley moved forward with the transactions anyway, at one point showing up with $300,000 in two Trader Joe’s grocery bags to make a trade with the undercover agent.

“Providing cash in envelopes (and in the significant amounts she did), in coffee shops and restaurants, is no way to conduct legitimate business, certainly when that volume exceeds the millions,” prosecutors wrote in a sentencing memorandumper Ars Technica. “Someone such as defendant—a former stockbroker and real estate investor—was certainly aware of that.”

Not helping her case was the fact that Tetley was also doing business with William James Farber, a man believed to be at the head of one of the largest drug rings on the now-shuttered dark web marketplace Alphabay. Ars Technica noted Farber was arrested last year and charged with conspiracy to possess and distribute controlled substances.

For her run as the Bitcoin Maven, Tetley will spend 366 days behind bars in a federal prison. Her stash of bitcoin collected from the business, which now belongs to the government, is worth about $250,000 as of Wednesday evening—but it’ll likely be worth $400,000, then $75,000, then $250,000 again by the end of the week.

‘Bitcoin Maven’ sentenced to a year in prison for money laundering

By James Koren

Bitcoin and other cryptocurrencies have for years been a preferred payment method on the so-called dark web — anything-goes corners of the internet where you can find drugs and other illegal products and services.

But once a drug dealer accepts crytocurrency, how do they turn that money into real currency? The case of Theresa Tetley is instructive.

The Marina del Rey woman exchanged millions of dollars in cash for bitcoin, including for a suspected online drug dealer. She was sentenced Monday to a year in federal prison after pleading guilty to money laundering.

Tetley, a former stockbroker turned bitcoin enthusiast who called herself “Bitcoin Maven,” will also pay a $20,000 fine and give up nearly $300,000 in cash, 25 gold bars and 40 bitcoin — worth about $270,000 as of Monday afternoon — that federal authorities seized last year.

From 2014 to last year, Tetley exchanged as much as $9.5 million in cash for bitcoin, meeting clients at restaurants, coffee shops and other public places to hand over envelopes of cash in exchange for the virtual currency, the Justice Department said in court filings.

She was arrested in March 2017 after a sting operation orchestrated by the U.S. Drug Enforcement Administration. She offered to exchange $300,000 in cash — carried in two Trader Joe’s paper grocery bags — for bitcoin held by an undercover DEA agent posing as a drug dealer, prosecutors said.

The Justice Department also alleged that Tetley made $6 million worth of bitcoin-for-cash exchanges with William James Farber, a Los Angeles man charged last summer with running an Altadena drug ring that sold cannabis on dark-web marketplaces Silk Road and AlphaBay.

Tetley was charged with money laundering and operating an unlicensed money-transmitting business and pleaded guilty to both charges in January.

It’s not illegal to exchange bitcoin or other digital currencies for cash, but Tetley did so without obeying federal rules that require banks and other financial firms to report suspicious activity and large cash transactions — measures that aim to curb money laundering by drug traffickers or other illegal businesses.

Bitcoin and other virtual currencies, which are not issued by governments and can be directly exchanged from person to person without going through banks or other regulated institutions, are a preferred payment method for dark-web transactions.

But those who accept virtual currency payments for illicit transactions may have a difficult time exchanging those holdings for real currency — unless they find someone like Tetley who would not report suspicious activity to federal regulators.

Brian Klein, one of Tetley’s attorneys, called the 12-month sentence a victory, noting that it is substantially shorter than the 30-month sentence sought by federal prosecutors. In a sentencing document submitted to the court, her attorneys argued that Tetley, though guilty, “did not set out to engage in a broad-ranging criminal enterprise.”

“We are pleased the judge made such a dramatic departure,” Klein said.

The U.S. attorney’s office argued in court filings that Tetley should have received a longer sentence because her conduct showed she knew or should have known some of her clients were engaging in illegal activity.

“Providing cash in envelopes (and in the significant amounts she did), in coffee shops and restaurants, is no way to conduct legitimate business, certainly when that volume exceeds the millions,” government attorneys said in court filings. “Her decision to continue to proceed in this manner highlights the seriousness of the offense.”

Crypto Thefts Triple, Driving Growth in Coin Money-Laundering

By Olga Kharif

Criminals are stealing more cryptocurrency from exchanges, and that’s driving growth in a cottage industry of services that allows for money laundering of coins, according to a new report.

In the first half of the year, more than $760 million in cryptocurrency was stolen from exchanges — nearly three times more than in all of 2017, CipherTrace said in its initial quarterly report on the subject. CipherTrace is a Menlo Park, California-based blockchain security firm that works with more than 40 companies and governments to trace crypto transactions.

The current market value of the top 100 cryptocurrencies is around $270 billion, according to CoinMarketCap.com. Services that clean dirty funds are widely available, CipherTrace said, and some have even advertised through Google AdWords.

“There are so many cryptocurrencies now, and they are worth so much money, and there are so many exchanges globally where you can cash out, that we’ve seen not just traditional cyber gangs but we’ve seen a new set of criminals enter this space,” Chief Executive Officer David Jevans said in a phone interview. “This overall market expansion has created a whole new generation of cyber criminals that didn’t exist 15 months ago.”

Crypto coins number more than 1,600, and tracking them all is increasingly difficult — which gives criminals an opening. Regulators have said that many exchanges and startups issuing new coins still don’t do enough to check customer identities and verify that users aren’t laundering stolen funds. Users buying and selling coins are typically represented by anonymous addresses.

Meanwhile, many exchanges — and new ones are opening all the time — have security vulnerabilities. And cryptocurrencies, once stolen, often can’t be returned or even traced to the thieves.

“It’s a lot easier than robbing banks,” Jevans said.

Regulators globally are likely to crack down on crypto money-laundering, Jevans said. While that’s probably good for investors, some coins could suffer.

“There are going to be small coins kicked off exchanges because it’s going to be difficult to track transactions,” he said.

The DOJ Ran a Bitcoin Laundering Sting and Caught Dozens of Drug Dealers

By Aaron Mak

The Department of Justice announced Tuesday that it had arrested more than 35 people and seized more than $23.6 million in assets in the “first nationwide undercover action to target vendors of illicit goods on the Darknet.” Over the course of a year, Homeland Security Investigations (HSI) agents posed as money launderers who were helping narcotics and weapons dealers convert cryptocurrency into U.S. dollars. A cache of around 2,000 Bitcoins, which are worth more than $20 million, make up the bulk of the seized assets. Agents also seized Bitcoin mining equipment, 333 bottles of liquid synthetic opioids, and a grenade launcher.

“At this crucial time of unprecedented drug related deaths, one of the greatest threats we face is cyber drug trafficking,” a Drug Enforcement Administration official said in a statement. “Because the Darknet invites criminals into our homes, and provides unlimited access to illegal commerce, law enforcement is taking steps to identify and arrest those involved.”

Bitcoin is often the currency of choice on the darknet, also known as the dark web, because it allows buyers and dealers of illicit goods to more easily retain their anonymity. Authorities claim that they identified dealers in popular marketplaces like Silk Road, AlphaBay, and Hansa. HSI Agent Angel Melendez told the Verge the agency is starting to focus more on individual sellers rather than marketplaces, because the illegal activity simply moves elsewhere when a hub is shut down.

In the past, authorities have also posed as weapons dealers, harvested IP addresses, and hacked suspects’ computers to track down alleged criminals on the dark web. Bitcoin exchanges themselves have also been pressured by law enforcement to keep better tabs on their customers to ensure that their platforms aren’t hosting money laundering and other crimes.

Major Crypto Exchanges Face Action Over Money-Laundering Fears

By Wolfie Zhao

Japan’s financial watchdog is reportedly planning to force improvements at a number of licensed cryptocurrency exchanges over perceived issues with internal systems, including anti-money laundering (AML) measures.

According to a report from Nikkei on Tuesday, the country’s Financial Service Agency (FSA) intends to ensure full compliance with current AML rules at larger exchanges as their holdings of customer funds rapidly increases. The report suggests at least five exchanges, including bitFlyer, Quoine, and Bitbank, are on the FSA’s list to receive “business improvement orders” this week.

The report said that, based on its recent inspections, the FSA found that some licensed exchanges still do not have sufficient measures in place for spotting suspicious transactions. Further, the agency is also concerned that the firms have not recruited enough staff to cope with the growing volume of transactions on their platforms.

Back in April, the FSA was already raising questions over what it considered a loosely enforced ID-verification process at bitFlyer, after which the firm pledged it would strengthen its procedures.

The agency also issued business improvement orders in March to a number of registered but lesser known cryptocurrency exchanges – including GMO Coin and Tech Bureau – as part of its review of crypto trading platforms following the $530 million Coincheck hack in January.

And, earlier this month, the FSA gave its first-ever license rejection to cryptocurrency exchange FSHO after having issued two suspension orders to the firm over its alleged failure to properly implement security and AML improvements.

The latest move by the FSA comes just days after a Japanese self-regulatory group of cryptocurrency exchanges proposed to strengthen their AML measures by prohibiting member platforms from listing anonymous cryptocurrencies such as monero and dash.

Formed in the aftermath of the Coincheck hack, the Japanese Virtual Currency Exchange Association consists of major exchanges such as bitFlyer, Bitbank and Quoine.

https://www.coindesk.com/major-crypto-exchanges-face-action-over-money-laundering-fears/

Crypto a threat to central bank driven monetary policy says IMF

By Kieran Smith

Decades before Bitcoin, the arrival of the internet prompted speculation that the relentless march of information technology would eventually put central banks in the same category as typewriters and cassettes—obsolete inventions that people once thought would last forever. The rise of cryptocurrency has rekindled this debate, and it is now being explored by one of the most powerful forces of the world economy—the International Monetary Fund.

In a blog post titled “Monetary Policy in the Digital Age”, fund director Dong He asserts that cryptocurrency has the potential to topple the monopoly of central banks, and that to stay relevant, banks must adapt to the demands of an evolving economy.

Toppling the monopoly

In a world of decentralised currency, the role of a centralised monetary policy is uncertain, and the blog suggests that in order to compete, banks must “strive to make fiat currencies better and more stable units of account”, noting that “effective monetary policy”, with an openness to fresh ideas, offers the best route towards economic stability.

This alone, however, will not be enough to guard against the dangers presented by cryptocurrency, and the post proposes rigorous regulation to prevent any “unfair competitive advantage” that might be offered by crypto-assets, along with reducing the possibility of them being used for “money laundering and the financing of terrorism.”

Finally, to adapt to the new era of digital finance, central banks should consider issuing tokens of their own—Central Bank Digital Currencies—which could also be exchanged peer-to-peer.

The post also explores what could happen if banks fail to adapt to widespread adoption of cryptocurrency. In this case, another potential scenario is put forward—one in which the demand for cryptocurrency over bank-issued currency undermines the authority of central banks’ monetary policies: “Central banks typically conduct monetary policy by setting short-term interest rates in the interbank market for reserves (or clearing balances they keep with the central bank). According to King (1999), ceasing to be the monopoly supplier of such reserves would indeed deprive central banks of their ability to carry out monetary policy.”

Aside from ideas of decentralisation, the post suggests that the cryptocurrency movement might in fact represent a deeper historical pattern in the evolution of finance—the decline of credit money, in favour of commodity money.

As he writes, “monetary systems seem to have alternated between commodity and credit money throughout history”, and crypto assets could be the impetus for another historic reversal.

 A new SEC advisor

While pragmatic, the IMF report is unflinching in its call for regulation to address the risk and volatility that cryptos pose, suggesting that with better issuance rules— even “smart rules” based on artificial intelligence, their valuation could become more stable. Timely then, that a new advisor for digital asset regulation has recently been appointed by the SEC. Valerie Szczepanik is filling an entirely new position that will oversee the application of US securities law to cryptocurrencies and digital assets.

This appointment may be a sign that financial regulators are beginning to warm to cryptocurrency. Ms. Szczepanik, who moved from the Division of Enforcement’s Cyber Unit, has previously indicated a balanced approach to regulation. At a conference on Financial Fraud earlier this year, she spoke of the need for the SEC to strike a balance between protecting investors and facilitating the emerging technology, stating “We do not want to chill the markets…the promise of blockchain technology is not one that we want to ignore.”

Her efforts, like the recent fake ICO scam website “Howeycoins,” are likely to be focused on protecting investors without smothering innovation. Some commentators, however, are suggesting otherwise. Certain figures in the crypto community have taken a more adversarial position on recent events, and powerful influencer John McAfee has issued a declaration of currency independence, warning of an impending currency war against the “powerful forces trying to derail the progress of the cryptocurrency revolution.”

Transaction Laundering – Money Laundering Goes Electronic in the 21st Century

By Ron Teicher

The age-old art of hiding money from governments truly took flight in the online era. The good news for us (and bad news for cyber criminals) is that regulators are starting to use technology to catch up.

In October 1931, American gangster Al Capone was convicted of tax evasion of approximately $1 million and sentenced to 11 years in prison. Federal Anti-Money Laundering (AML) laws didn’t exist yet, but prosecutors were able to prove that Capone was illegally hiding his bootlegging profits to avoid paying federal taxes. To this day, it remains the most famous case of financial crime in American history, as it put an end to his Chicago-based crime operations.

The FBI’s success in using financial law against Capone forced criminals to devise a more sophisticated method to disguise profits from their illicit practices. Succeeding gangsters learned from Capone’s demise, and realized the importance of establishing businesses as “fronts” for their underground, illegal activity. Casinos were probably the most obvious examples of fronts, where large volumes of money could flow in and out.

The legal struggle against money laundering began, in earnest, some 50 years ago with the Bank Secrecy Act of 1970. This law required financial institutions to record large cash transactions, and report suspicious fiscal activity to the government. Various legislation over the following decades mitigated criminal activity, and made it much more difficult for criminals to hide illicit funds.

But then, came the age of the Internet and online commerce, where hiding behind a computer screen was able to give you a degree of anonymity.

And with this, a new category of online crime began exploiting the industry of digital payments in order to facilitate money laundering. Regulators, who previously devoted massive resources to building complex, mostly manual, AML processes – now simply can’t keep up in this digital age.

Transaction Laundering – The New Face of Money Laundering

Electronic money laundering, also known as Transaction Laundering, is the most common, but least enforced , method of money laundering. The principle is simple: an unknown online business uses an approved merchant’s payment credentials to process credit card transactions for unknown products and services.

For example, a cyber criminal can set up a website in a matter of minutes, accepting payment via card, and disguise their income from illegal activities by rerouting payments through a legitimate merchant account, like an online book shop.

In addition to regulatory offenses, Transaction Laundering infringes upon credit card brand policies, putting merchants and acquirers in violation of KYC requirements  and violates numerous federal regulations.  This leads to potential fines, legal action and brand damage.

Transaction Laundering is happening, right now,  directly under the noses of regulators through the exploitation of online anonymity. The threat of this criminal activity grows as the volume of Internet commerce grows. How big is Transaction Laundering, really?

Our research has shown that Transaction Laundering for the online sales of products and services reaches over an estimated $200 billion a year in the US alone. Of this, $6 billion involves illicit goods.

Not Just Drugs, Guns, and Trafficking: Transaction Laundering Also Finances Global Terror

Just like in the days of Al Capone and the early advent of money laundering, Transaction Laundering is linked to illegal activity.  Perhaps an even worse reality, in our current times, it is now proven to be the source of financing for numerous terror attacks – including the violent attack on the offices of French satire magazine Charlie Hebdo.

Moreover, the FBI recently revealed that ISIS was using Transaction Laundering to finance a US domestic terror agenda via eBay and PayPal. As reported in The Wall Street Journal, the FBI announced that an American-born ISIS operative and US citizen was arrested after he received nearly $10,000 via PayPal for fraudulent sales of fake computer printers via eBay.

Transaction Laundering is not just a domestic U.S. threat. The Daily Beast recently reported that Russian criminals are using Airbnb to launder illicit funds from stolen credit cards. Unlike other Transaction Laundering instances, the Airbnb scheme also involves fraudulent, complicit hosts instead of merchants – exploiting Airbnb’s online marketplace to conduct illegal activity.  The scam is simple: fraudsters use stolen credits cards to launder the dirty money through complicit Airbnb hosts they meet in underground, online forums. Once the Airbnb booking transaction is processed, no one actually stays at the advertised accommodation; instead the two parties split the payment and create fake end-of-stay reviews to close the transactional loop.

The Good News: Regulators are Finally Catching Up

The good news for 21st century is that AML regulations are starting to sync with the digital world. There are an estimated 40 million e-commerce websites worldwide, making manual monitoring and long onboarding  processes inefficient and overall impossible. As new Regulatory Technology, or “RegTech” players, enter the scene, AML regulators are able to take advantage of emerging technologies like AI and machine-learning solutions to more effectively fight digital money laundering. This is a game changer for regulators who have long been statutorily powerful, yet unable to exert the full measure of their power against digital money launderers.

Newfound regulatory confidence and advanced RegTech are making the detection and prevention of Transaction Laundering a shared responsibility among law enforcement agencies, e-commerce players, MSPS, fintech providers and individual users. With the right digital tools in place, electronic money laundering can be detected, and ultimately intercepted. After so many years of hiding their illegal practices behind the screen, e-money launderers have good reason to be worried. Much like Al Capone’s, their elaborate schemes and operations could soon come to an end.

https://www.finextra.com/blogposting/15423/transaction-laundering—money-laundering-goes-electronic-in-the-21st-century

Solving a blockchain conundrum: Biometrics could recover lost encryption keys

By Lucas Mearian

Blockchain could one day solve the online privacy problem by encrypting or scrambling personally identifiable information and issuing each person a random string of bits – a private key – created explicitly for unscrambling their data.

The person holding the blockchain private key could issue various public keys controlling who has access to the personal data on the blockchain. So, for instance, if a car rental agency needed to verify you have a driver’s license, you could use a public key to give them access to that information. You could later revoke access to that information.

The still-nascent distributed ledger technology, however, faces a vexing problem: what does a user do if they lose their private key? Essentially, a lost key means they lose access to all of their data – and if that data happens to include bitcoins or other cryptocurrency, they lose their digital money as well.

For example, Bitcoin scrambles user information through the use of the AES 256-bit encryption algorithm, which creates a 256-bit private key that can be represented by 32 or 64 alpha numeric characters.

“For Bitcoin, there simply is no key recovery. If you lose your private key, you’ve lost your Bitcoin,” said Martha Bennett, a principal analyst at Forrester Research.

Lance Morginn, CEO and co-founder of the Blockchain Intelligence Group, believes the blockchain industry and government regulators will need to collectively come to terms on a standard for reclaiming a lost private key.

The Blockchain Intelligence Group is a private company that offers blockchain search and data analytics tools; it has already been working on ID management with U.S. regulators and law enforcement agencies.

The most likely method for reclaiming a private key would be to physically go to a secure facility where the key’s owner would have to pass a number of security measures before the key is restored.

“It’s going to come down to a multitude of biometric devices. It could include a fingerprint scanner with a pulse detector, a retinal scanner and facial recognition all tied together,” Morginn said. “We’re in discussions with number of different regulators around world.”

Increasing regulatory scrutiny

While the idea of going to a private key reclamation facility may seem far-fetched, regulators in various countries are already boosting their scrutiny of cryptocurrency exchanges, including requirements that cryptocurrency be stored offline.

After a number of bitcoin thefts over the past seven years, Japanese regulators this month tightened their rules requiring exchanges to keep bitcoins offline or in “cold storage,” and bitcoin wallet access will require more than one person’s login information.

Conversely, most of the world’s other bitcoin exchanges today continue to keep the digital currency in “hot wallets” or online electronic depositories managed by the exchanges themselves.

Japanese bitcoin exchanges will also have to take more action to prevent money laundering, just as financial service companies in the U.S. must do today by following know-your-customer (KYC) and anti-money laundering (AML) guidelines.

Blockchain identity networks projects have also sprung up, offering the potential to satisfy new, more stringent requirements, such as KYC, to ensure that companies know with whom they’re doing business. KYC regulations were enacted in recent  years to address a rise in money laundering and terrorist activity funding.

Through a blockchain identifier network, banks could pre-verify who their customers are, and whether or not they’re tied to nefarious activities.

There are already blockchain networks that use biometrics to enable access to private keys and the personally identifiable information (PII) they protect.

Biometrics for accessing keys

For example, Civic, a blockchain identity-verification technology provider, pre-registers users and their identification data, encrypts it and issues a passcode accessible via a finger print scan using an app on a mobile device.

In March, Civic partnered with mobile voting provider Votem to launch a know-your-customer process that will pre-register and authenticate those participating in Votem’s crowdfunding initial coin offering (ICO). Once user IDs have been verified using blockchain, the identities are stored on the Civic App and can be reused for the ICO.

Civic’s private keys are generated by a third-party crypto wallet, providing a firewall between Civic and users’ keys app. The fingerprint scan eliminates the need for logins  with a username, password, third-party authenticator, or physical hardware token. Civic users can choose who gains access to their information and what data gets shared.

Just as physical keys only open the locks for which they were made, public keys can be used by blockchain users to control what data is released to whom; public keys are controlled through smart contracts, a blockchain business automation tool that determines what information is released based on the public key used.

There are several projects in the works to enable the worldwide exchange of PII via blockchain networks. The biggest benefit: there would be no central authority, such as a bank, governing the exchange of private data. The control would remain with the owner of that data.

For example, the Sovrin Foundation, a new nonprofit organization now developing the Sovrin Network, could enable anyone to globally exchange pre-verified data with any entity also on the network.

The online credentials would be akin to identify information that might already be in someone’s physical wallet: a driver’s license, a bank debit card or a company ID.

Instead of a physical card, however, the IDs in digital wallets would be encrypted and link back to the institutions that created them, such as a bank, a government or even an employer. Any of them, through the blockchain, would automatically verify  information to a requestor.

The owner of the digital wallet can limit what information a business receives via an electronic token.

“Let’s say I go to rent a car and you’ve got the 18-year-old behind the counter that I have to give all my information – my driver’s license, my credit cards. She doesn’t need all that information. She just needs to know that I’m authorized to drive that car. I have just given her the… token saying I’m licensed in the state of New York,” said Shone Anstey, president and co-founder of the Blockchain Intelligence Group.

“That way, if the car company has a break-in and someone steals all their databases, they don’t have my personal information,” Anstey added.

The ID2020 alliance, a global partnership, is working to create an open-source, blockchain-based digital identity system for people in the U.S. or other nations who lack legal documentation because of their economic or social status.

A blockchain-based identity token, one that contains PII, may be considered more sensitive because once in someone else’s possession it could be used to impersonate someone for any number of purposes. Witrh that in mind, regulators are considering how blockchain users would be able to revoke access to their identity tokens as well, Anstey said.

Michael Fauscette, chief research officer at G2 Crowd, a business-to-business software review site, expects that in the next five years, decentralized identity verification will no longer be a novelty; it will be the norm.

“Imagine hiring without reference checks or transcript verifications, where all that an applicant needs is a blockchain hash,” Fauscette said.

With identities, bank accounts and employer information all possibly stored online through blockchain, it will be more crucial than ever to ensure that a lost private key can be recovered.

Despite steps in the right direction, the industry isn’t even close to enabling how private keys will be recovered, Morginn said.

https://www.computerworld.com/article/3273429/blockchain/solving-a-blockchain-conundrum-how-biometrics-could-recover-lost-encryption-keys.html

Combating fraud and money laundering with graph analytics

By Yu Xu at Tiger Graph

Dirty money and money laundering have been around since the existence of currency itself. On a global level, as much as $2 trillion is washed annually, estimates the United Nations. Today’s criminals are sophisticated, using ever-adapting tactics to bypass traditional anti-fraud solutions. Even in cases where enterprises do have enough data to reveal illicit activity, more often than not they are unable to conduct analysis to uncover it.

As the fight against money laundering continues, AML (anti money laundering) compliance has become big business. Global spending in AML alone weighs in at more than $8 trillion, says WealthInsight. This figure will continue to grow, considering how any organization facilitating financial transactions also falls within the scope of AML legislation.

But combating crime is never easy. Especially when organizations face pressing needs for cost reduction and faster time to AML compliance in order to avoid regulatory fees. Legacy monitoring systems have proven burdensome and expensive to tune, validate and maintain. Often involving manual processes, they are generally incapable of analyzing massive volumes of customer, institution and transaction data. Yet it is this type of data analysis that is so critical to AML success.

New ideas have emerged to tackle the AML challenge. These include: semi-supervised learning methods, deep learning based approaches and network/graph based solutions. Such approaches must be able to work in real time and handle large data volumes – especially as new data is generated 24/7. That’s why a holistic data strategy is best for combating financial crime, particularly with machine learning (ML) and AI to help link and analyze data connections.

Graph analytics for AML

Graph analytics has emerged at the forefront as an ideal technology to support AML. Graphs overcome the challenge of uncovering the relationships in massive, complex and interconnect data. The graph model is designed from the ground up to treat relationships as first-class citizens. This provides a structure that natively embraces and maps data relationships, even in high volumes of highly connected data. Conducted over such interconnected data, graph analytics provides maximum insight into data connections and relationships.

For example, “Degree Centrality” provides the number of links going in or out of each entity. This metric gives a count of how many direct connections each entity has to other entities within the network. This is particularly helpful for finding the most connected accounts or entities which are likely acting as a hub, and connecting to a wider network.

Another is “Betweenness,” which gives the number of times an entity falls on the shortest path between other entities. This metric shows which entity acts as a bridge between other entities. Betweenness can be the starting point to detect any money laundering or suspicious activities.

Today’s organizations need real-time graph analytic capabilities that can explore, discover and predict very complex relationships. This represents Real-Time Deep Link Analytics, achieved utilizing three to 10+ hops of traversal across a big graph, along with fast graph traversal speed and data updates.

Let’s take a look at how Real-Time Deep Link Analytics combats financial crime by identifying high-risk transactions. We’ll start with an incoming credit card transaction, and demonstrate how this transaction is related to other entities can be identified:

New Transaction → Credit Card → Cardholder → (other) Credit Cards → (other) Bad Transactions

This query uses four hops to find connections only one card away from the incoming transaction. Today’s fraudsters try to disguise their activity by having circuitous connections between themselves and known bad activity or bad actors. Any individual connecting the path can appear innocent, but if multiple paths from A to B can be found, the likelihood of fraud increases.

Given this, more hops are needed to find connections two or more transactions away. This traversal pattern applies to many other use cases – where you can simply replace the transaction with a web click event, a phone call record or a money transfer. With Real-Time Deep Link Analytics, multiple, hidden connections are uncovered and fraud is minimized.

By linking data together, Real-Time Deep Link Analytics can support rules-based ML methods in real time to automate AML processes and reduce false positives. Using a graph engine to incorporate sophisticated data science techniques such as automated data flow analysis, social network analysis, and ML in their AML process, enterprises can improve money laundering detection rates with better data, faster. They can also move away from cumbersome transactional processes, and towards a more strategic and efficient AML approach.

Example: E-payment company

For one example of graph analytics powering AML, we can look towards the #1 e-payment company in the world. Currently this organization has more than 100 million daily active users, and uses graph analytics to modernize its investigation methods.

Previously, the company’s AML practice was a very manual effort, as investigators were involved with everything from examining data to identifying suspicious money movement behavior. Operating expenses were high and the process was highly error prone.

Implementing a graph analytics platform, the company was able to automate development of intelligent AML queries, using a real-time response feed leveraging ML. Results included a high economic return using a more effective AML process, reducing false positives and translating into higher detection rates.

Example: Credit card company

Similarly, a top five payment provider sought to improve its AML capabilities. Key pain points include high cost and inability to comply with federal AML regulations – resulting in penalties. The organization relied on a manual investigative process performed by a ML team comprised of hundreds of investigators, resulting in a slow, costly and inefficient process with more than 90 percent false positives.

The company currently is leveraging a graph engine to modernize its investigative process. It has moved from having its ML team cobble processes together towards combining the power of graph analytics with ML to provide insight into connections between individuals, accounts, companies and locations.

By uniting more dimensions of its data, and integrating additional points – such as external information about customers – it is able to automatically monitor for potential money laundering in real time, freeing up investigators to make more strategic use of their now-richer data. The result is a holistic and insightful look at its colossal amounts of data, producing fewer false positive alerts.

As we continue into an era of data explosion, it is more and more important for organizations to make the most in analyzing their colossal amounts of data in real time for AML. Graph analytics offers overwhelming potential for organizations in terms of cost reduction, in faster time to AML compliance and most importantly, in their ability to stop money laundering fraudsters in their tracks.