An ethical hacker breached the database of a phony darknet website offering hitman services and leaked the data. The information from the data dump helped the FBI in their investigation of a man who murdered his wife.
In November 2016, Stephen Carl Allwine, 47, of Cottage Grove, Minnesota, killed his wife in “one of the most bizarre cases ever seen,” police officers reported. The husband tried to mask the murder as a suicide, including putting a 9 mm pistol next to Amy Allwine’s elbow. However, detectives arriving on the scene identified the case as murder and collected evidence — mostly electronic devices, such as computers — belonging to Mr. Allwine. Later on, in January, investigators arrested and charged Mr. Allwine with second-degree murder based on the forensic evaluation of the confiscated electronic equipment.
In May 2016, a hacker called “bRpsd” breached the database of a controversial hitman service offered on a darknet website. The service, “Besa Mafia,” offered a link between customers and hitmen, who could register on the site anonymously. The price for a murder ranged between $5,000 and $200,000, but clients seeking to avoid fatalities could also hire a contractor to beat up a victim for $500 or set somebody’s car on fire for $1,000.
The hacker uploaded the data dump to a public internet website. The leaked files contained user accounts, email addresses, personal messages between the Besa Mafia admin and its customers, “hit” orders and a folder named “victims,” providing additional information on the targets.
The breach highlighted the fake nature of the website, which operated only to collect money from the customers. Chris Monteiro, an independent researcher who also hacked into the site, stated the owner or owners of Besa Mafia had made at least 50 bitcoins ($127,500 based on the current value of the cryptocurrency) from the scam operation.
According to a message posted by a Besa Mafia administrator and uncovered in the dump, “[T]his website is to scam criminals of their money. We report them for 2 reasons: to stop murder, this is moral and right; to avoid being charged with conspiracy to murder or association to murder, if we get caught.”
The leak of the Besa Mafia database helped the police investigating the murder of Mrs. Allwine. As the officers analyzed her husband’s devices, they discovered the suspect had accessed the dark web as early as 2014. Furthermore, investigators identified the pseudonym Mr. Allwine used on the darknet, “dogdaygod,” which was also linked to his email, “[email protected],” in some cases. Detectives found bitcoin addresses in the conversations between Besa Mafia and Mr. Allwine, which linked the husband directly to the “dogdaygod” pseudonym, providing authorities with necessary evidence for the case.
Eventually, law enforcement agents analyzed the data dump bRpsd leaked and discovered Mr. Allwine’s email in the list. In addition, investigators found messages between the suspect and the Besa Mafia admin. According to a criminal complaint, Mr. Allwine paid between $10,000 to $15,000 to the supposed hitman service to kill his wife. The complaint detailed how Mr. Allwine had decided to have the hitman shoot Mrs. Allwine at close range and burn down the house afterward.
However, once the funds were transferred, the Besa Mafia communicator told Mr. Allwine that “local police [have] stopped the hitman [from] driving a stolen vehicle and taken [him] to jail prior to the hit,” thus rendering him unable to complete his “service.” The complaint cited Sergeant McAlister who reported that during that time, “no one was apprehended in Minnesota and western Wisconsin in a stolen vehicle and possession of a gun.”
It is likely that the ethical hacker’s data breach had an impact on Mr. Allwine’s case; on March 24, 2017, the Washington County District Court charged him with first-degree murder. In addition, officers have gathered more evidence in the case — a drug called scopolamine was discovered at 45 times higher than the recommended level in Mrs. Allwine’s body. Investigators subsequently discovered that her husband had also ordered the substance on the dark web.
“Bitcoin Laundering” Study: Where Do Criminals Turn to Mask Illicit Cryptoassets?
A recent study (PDF) from the Foundation for Defense of Democracies’ Center on Sanctions and Illicit Finance and blockchain analytics company Elliptic explored the “bitcoin laundering” ecosystem. In the study, Elliptic’s forensic analysis of the Bitcoin blockchain and other publicly available data were used to track the flows of illicit funds from 2013 to 2016.
“This study aimed to identify where individuals turn in order to cash out or transmit bitcoins (BTC) acquired from illicit entities and to discover typologies for criminals ‘laundering’ bitcoins,” the report says.
The study describes bitcoin laundering as a special type of money laundering that exists within the Bitcoin network where a user moves some bitcoins to a new address in a manner that obscures the original source of funds. The conversion of bitcoins into fiat currency on exchanges that lack adequate anti-money laundering (AML) and know-your-customer (KYC) policies can also fall under the category of bitcoin laundering.
In addition to describing the common mechanisms for bitcoin laundering and explaining that this sort of activity is a small percentage of all transactions sent to exchanges and other conversion services, the study also offers some recommendations for law enforcement in terms of preventing the masking of illicit funds on the Bitcoin network.
It should go without saying that any study related to the dark web or illicit use of the Bitcoin network needs to be taken with a grain of salt because avoiding detection is the whole reason for a criminal to use these sorts of platforms in the first place.
The Bitcoin Laundering Ecosystem
Much of the study, which is titled “Bitcoin Laundering: An Analysis of Illicit Flows Into Digital Currency Services,” revolves around the use of “conversion services.” Conversion services are basically platforms where users convert bitcoins to fiat currency (a Bitcoin exchange) or another cryptocurrency (a cryptoexchange), or move the bitcoins to another Bitcoin address accessible to the user. This results in a flow of funds that cannot be viewed or traced directly on the public blockchain.
According to the study, darknet markets are the main source of funds that are sent to conversion services in bitcoin laundering attempts.
Additionally, the number of illicit services that could be the source of “dirty bitcoins” sent to a conversion service increased fivefold from 2013 to 2016. Having said that, the study finds that the sources of illicit funds entering conversion services are quite centralized.
“Only a small number of entities account for the majority of illicit activity in our sample,” the study says. “Nine of the 102 illicit entities were the source of more than 95 percent of all laundered bitcoins in our study. All nine were darknet marketplaces.”
While exchanges are the most commonly used type of conversion service, bitcoin mixers and gambling sites have much more illicit funds coming into their platforms as a percentage of their overall transactions. As potential conduits for bitcoin laundering, these two types of conversion services benefit from concealing their country of operations and avoiding enforcement of AML regulations.
“Fewer than 10 percent of all transactions overall passed through unknown jurisdictions … while 52 percent of illicit laundering went through them,” the study says.
Much like the sources of illicit funds, the conversion services where these funds are sent are also highly centralized, the study finds. The data indicates that 97 percent of illicit transaction volume at mixers and gambling sites goes through three different entities. Additionally, two platforms in Europe account for half of all illicit transfers that go into exchanges.
Not Much Bitcoin Laundering Activity Overall, and It’s on the Decline
Another notable aspect of the study is that the data indicates a low level of bitcoin laundering as a percentage of all payments sent to conversion services.
“The amount of observed Bitcoin laundering was small (less than one percent of all transactions entering conversion services),” notes the study.
The report clarifies that the actual volume of illicit Bitcoin transactions sent to conversion services is “almost surely to be significantly larger” than what the data in the study shows because intermediate transactions are not counted. In other words, the report only covers transactions made directly from an illicit source, such as a darknet market, to a conversion service.
The study also indicates a decrease in illicit Bitcoin transaction volume going to conversion services over time.
“It is likely that illicit bitcoins fell as a percentage of total volume entering conversion services due to the cryptocurrency’s increasing popularity as a speculative investment as well as new laundering techniques,” the study says. “The drop may also reflect better AML/CFT compliance by conversion services, including the use of blockchain analysis services to determine customers’ source of funds.”
The study later adds, “Our study, the first of its kind, indicates that while most types of conversion services have received some bitcoins from illicit activity, the vast majority of the funds they receive do not appear to be illicit.”
Recommendations for Law Enforcement That Will Likely Fall Short
The report offers recommendations for law enforcement in terms of what they can do to combat the effectiveness of bitcoin laundering.
First, the study says proper KYC and AML policies need to be enforced on the bitcoin mixers and gambling sites that allow for anonymous usage. It notes that the three conversion services that account for 97 percent of bitcoin laundering on these types of platforms should be targeted by financial authorities.
“The fact that most mixers and gambling sites hide their location of operations indicates they probably seek to evade the basic regulations in place to uphold transparency and financial integrity standards in most jurisdictions,” adds the study.
Of course, it should be noted that targeting these sorts of services will become nearly impossible as they become more decentralized over time. Decentralized platforms like JoinMarket, TumbleBit and ZeroLink remove the ability for authorities to clamp down on bitcoin mixing in an effective manner, as these solutions act more as software than services.
Second, the report also calls for increased AML and KYC compliance at European exchanges.
“Many large European Bitcoin exchanges do implement robust AML policies,” says the study. “However, this is out of choice rather than obligation, and there are some who choose not to, possibly to attract business from criminals.”
The study adds that the European Union is already moving in the right direction via an update of their 2015 Anti-Money Laundering Directive to include fiat-to-cryptocurrency exchanges, but in the view of the authors of the paper, crypto-to-crypto exchanges must also be regulated in this manner.
Again, it needs to be pointed out that more problematic technology — at least from law enforcement’s point of view — is on the horizon in the form of decentralized cryptoexchanges. Through the use of eBits, users will be able to instantly trade between different cryptoassets without the need for a trusted third party.
Third, the study calls for a sort of propaganda campaign against the use of darknet markets by criminals and the general public at large.
“Law enforcement should increase customer skepticism about [darknet market] sites’ integrity and reduce the perceived security of such platforms by exposing their vulnerabilities publicly,” says the study.
The report adds that law enforcement should make it well known that they’re lurking on these darknet markets to further shake confidence in them.
Darknet markets are another area of the Bitcoin ecosystem that are becoming more decentralized through platforms such as OpenBazaar. While illicit activity on the OpenBazaar network appears to be limited at this time, it could potentially explode in popularity as a reaction to law enforcement’s hypothetical campaigns against the centralized darknet markets.
Fourth, the report praises the decision by financial authorities in the United States to regulate exchanges as Money Service Businesses. The authors of the paper would like to see this sort of policy rolled out worldwide.
Last, the study notes the need to prevent the illicit use of bitcoin and other cryptocurrencies to get around economic sanctions imposed by the United States or other nations.
“In addition to mitigating illicit finance risks like criminal money laundering, there will likely be a need to develop strategies to counter state actors aiming to use cryptocurrencies to circumvent U.S., EU, and UN sanctions.”
Recently, there have been reports of North Korea, Russia and Venezuela all looking into separate mechanisms for avoiding economic sanctions through the use of cryptocurrencies.
The Silk Road Report
For better or for worse, Silk Road has been a fixture in the Bitcoin economy ever since the currency first caught the attention of the mainstream media in early 2011. The service is an online black marketplace for goods such as drugs, pirated digital goods, books on topics such as computer hacking and drug manufacture, counterfeits and forgeries, complete with an Ebay (or Bitmit)-style user interface, an escrow system and a Bitcoin wallet that mixes all incoming and outgoing coins so as to obscure their origin. It operates completely anonymously, existing to the outside world only as a so-called “hidden service” on the Tor network, run by a user who is known to others only as “Dread Pirate Roberts”. It maintains the secrecy of its operators and location by combining two technologies: Tor, the largely US military-funded internet anonymizing service intended to help dissidents in authoritarian regimes evade the prying eyes of their governments, and Bitcoin. The former makes it extremely difficult to trace buyers and sellers’ communications, and the latter, combined with Silk Road’s proprietary mixing system, their financial trail.
Silk Road attracts people for many reasons. Some are simply interested in having a safe and easy place to buy and sell illegal items, of which drugs are by far the largest category. Others cite costs as a factor. One writer, Gwern, claimed in his review of Silk Road that he was able to find Adderall on sale for a “price per pill far superior to that I was quoted by one of my college-age friends (less than 1/3 the price) and also better than the Adderall price quote in the New Yorker, $15 for 20mg”. For others, Silk Road is an ideological mission far more than it is about the goods. Dread Pirate Roberts frequently promotes libertarian political principles on his own forum, and there is a common consensus that fining and imprisoning people for putting substances into their own bodies is morally wrong. The crypto-anarchist movement, which seeks to remove the potential for individuals and institutions to exert power over others by moving key social institutions onto mathematically secured, and often anonymous, internet-based protocols, also finds the service attractive. As governments continue attempting to push restrictive internet legislation such as SOPA and ACTA into law, the allure of using Tor to make such government machinations simply irrelevant will only continue to increase. Finally, there are some legal products available for sale on Silk Road, and even for those who are not interested in using Silk Road to circumvent the law the service provides an active community in which entrepreneurs can nurture their online business and potentially develop a second income from the comfort of their own homes.
Silk Road first truly broke into the public view on June 1, 2011, when an article on gawker.com made a detailed review of the service, and membership quickly jumped by an order of magnitude to over ten thousand. A few days later, the US government caught on, and senators Charles Schumer and Joe Manchin called for the website to be shut down immediately, proclaiming that “Never before has a website so brazenly peddled illegal drugs online” and “by cracking down on the website immediately, we can help stop these drugs from flooding our streets.” Since this brief spark, however, Silk Road has faded somewhat into the background. On June 9, the Bitcoin price bubble finally popped, and attention quickly turned to first this, then to further negative attention on Bitcoin’s economic properties, and finally a security crisis involving a series of unrelated events in late June, continuing in August as bitomat.pl was hacked and the first online Bitcoin wallet, MyBitcoin, disappeared with 51% of its users’ deposits.
Silk Road suffered as the price fell from $31 to $2 between June and November, making it difficult for sellers to make money, but the service retained a loyal following and its users were eventually rewarded with the price rebounding and stabilizing in early 2012. The number of accounts is currently at about 22000, and the largest number of people online at any given time is 126 – a stable community, but much smaller than those who see Silk Road as being the single shadowy force keeping up the Bitcoin economy behind the scenes imagine. About three quarters of its users are from the United States, although British and European users are a sizeable minority. One reason for this is the relative ease of buying bitcoins in the US, as well as the higher interest in drugs there, but the divide is also because Silk Road does little to cater to its non-US customers. For example, Silk Road users have the option of seeing prices in BTC or USD, but not any other currency. This is particularly of concern for non-US sellers, because they, unlike sellers who are based in the US, do not have the choice of setting a price for their goods that is fixed in their local currency. Language is another concern; foreign language support is nonexistent, and even dedicated subforums for second-tier languages are lacking.
So far, there have been no reports of anyone being arrested as a result of Silk Road activity, and there are good reasons to believe that while the DEA may find Silk Road worth keeping an eye on, they are not actively attempting to identify buyers or sellers. As one Silk Road user, vlad1m1r, who confines himself to the strictly legal activity of selling bitcoins in exchange for cash in the mail in the UK, writes, “I find it implausible that they are monitoring it on a daily basis as it’s simply not an effective use of resources due to the anonymous nature of the Tor network and the use of GPG encrypted messages to exchange personal information. Users occasionally speculate that this vendor or that may be LE (Law Enforcement) but I doubt very much that a Police officer would sell drugs in order to make arrests as this would be textbook entrapment.” The last claim, that a police officer selling drugs constitutes entrapment, is a legally complicated one; USLegal defines entrapment as being “when [a person] is induced or persuaded by law enforcement officers or their agents to commit a crime that he had no previous intent to commit”; someone actively searching drug listings on Silk Road would likely not fall under the definition. Nevertheless, the argument that it’s not worth it to spend the resources going after Silk Road is a valid one, and law enforcement officials who are more interested in mitigating the social consequences of drug sellers and gangs on the streets than in pursuing a prohibitionist agenda as an end in itself may well decide to leave Silk Road alone simply because buying drugs on the internet is much safer than the alternative.
The relationship between Silk Road’s users and its management tends to be a positive one. As vlad1m1r describes it, “we do get the occasional malcontent who complains that their thread was arbitrarily deleted or that the creator of Silk Road himself DPR hasn’t deigned to address their particular concern, but people are generally polite when asking for new products or help with using the site, and the admins largely reciprocate.” One of the factors contributing to Silk Road’s cohesive community is the high level of trust. Scams are a serious problem on the darknets because of the anonymity of the participants and the fact that going to the police for help necessarily implies confessing to a crime, and Silk Road is one of the few places that attempts to counteract this with a reputation system and a built-in escrow service.
However, there are problems. One major controversy among the service’s users is that of morality. There have been instances of people putting up images which constitute child pornography in some jurisdictions but are acceptable in others, and the Silk Road administration tends to stick to its own moral philosophy in such cases, not taking down consensual images which are slightly underage but strictly prohibiting products of genuine abuse. There have also been requests for credit card skimming devices, which are not allowed under Silk Road law, but which some people believe are no more immoral than counterfeits and drugs. Weapons were another concern, and Dread Pirate Roberts eventually resolved that particular concern with the middle-of-the-road option of banning them from Silk Road itself but allowing them on a specifically designed sister site called The Armory. Services such as theft and contract killing are banned from Silk Road and The Armory entirely, although some Silk Road users point buyers interested in such goods to a competing site with no moral restrictions at all, Black Market Reloaded.
The other issue, although not a controversy, revolves around the escrow system. The default way of making transactions in Silk Road is for the buyer to send his funds not to the seller directly, but to the escrow system, which notifies the seller that it received and is holding the funds. When the buyer receives his product, he notifies the escrow system that the transaction was successful, and the seller gets his money. Some sellers, however, ask their buyers to bypass this mechanism and send directly to them for convenience, a practice which is heavily frowned upon by the Silk Road administration and community, but is nevertheless sometimes done. On April 20, many sellers on Silk Road celebrated the service’s first birthday by hosting special sales of their products at reduced prices, and one established vendor, Tony76, used the opportunity to sell a large number of orders and ran off with the money. There is some speculation as to just how much Tony76 was able to steal, but it is known that he transferred at least $30,000 worth of bitcoins off the site. Since then, the use of escrow has gained in popularity once again, and the possibility of making escrow mandatory, while not currently implemented, is always under discussion.
Outside opinion on Silk Road is split. Some believe that the Bitcoin economy would be better off without such services tarnishing its reputation, as it would be better able to market itself as a currency with legitimate uses, while others openly embrace the underground economy either seeing its liberation as an end in itself or respecting its potential to act as a bootstrapping mechanism for Bitcoin. In terms of its size, Silk Road is currently Bitcoin’s largest e-commerce platform, having about twice as many products as its largest legal competitor, bitmit.net, but it is far from being Bitcoin’s economic powerhouse, a title to which businesses like Butterfly Labs and BitInstant hold a much greater claim. Both supporters of Silk Road’s particular brand of crypto-anarchic freedom and people concerned with Bitcoin’s public image can rest assured that Silk Road is nowhere near taking over the Bitcoin economy, but neither is it going away.
Silk Road’s “The Armory” Terminated
The owner and operator of Silk Road, aliased as Dread Pirate Roberts, announced on August 2nd, 2012 that “The Armory”, an extension of Silk Road focused on allowing users to anonymously buy and sell munitions, will be closing. Roberts cited a low and continuously declining number of transactions – enough that the 10% take of Silk Road wasn’t even enough to keep the servers paid – as reason for discontinuing this particular arm of the Silk Road marketplace. Some users explain user dis-interest with high prices on The Armory, and too much competition from local dealers, who can still retain customer privacy while conducting legal transactions.The Armory is not yet closed – a countdown has been initiated, to end at 8:10 PM GMT on August 15th. Roberts warns users to finish up their current business and withdraw any lingering funds before the countdown is reached.Many Bitcoin users have expressed joy over the closure, either for personal anti-gun reasons, or for the removal of a potential derogatory connotation of Bitcoins with the illegal sale of firearms.Despite this closure, there may be hope in the future for those interested in anonymously pawning and procuring guns online. Roberts states, “if we are going to serve an anonymous weapons market, I think it will require more careful thought an[d] planning,” indicating the possibility of a future restoration of the service after some additional forethought on the design.What do you think about the closure of The Armory? Post your comment below, or send an email to [email protected]
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