Cartels and crypto

REP. TONY GONZALES (R-TEXAS) AND SAMANTHA F. RAVICH

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If the massive spike in traffic across the U.S.-Mexico border continues at its current pace, total border arrests in 2021 will be the highest since 2000, when nearly 1.7 million illegal border crossers were apprehended by U.S. authorities. Down in Texas’ 23rd District, which encompasses 40 percent of the total southern border, residents are no strangers to the dangers that come with illegal border crossings, specifically those connected to cartel activity. A worrisome new technological development has arisen that can potentially lay the groundwork for these criminal elements to increase their drug and human smuggling operations exponentially.

Latin American cartels have been on the leading edge of technological innovation for decades. Their drones, stealth submarines, and encrypted technologies rival the world’s best intelligence agencies. Therefore, it should come as no surprise to see that cartels have now embraced cryptocurrency as an avenue for currency that cannot be easily tracked or traced.

Because cryptocurrencies are still not widely accepted as a form of currencies, digital wallets must be paired with a bank account to convert the cryptocurrency back into money that the individual can use in the real world. While financial institutions and law enforcement can view transactions from bank accounts to the digital wallets that house the cryptocurrencies, investigators can quickly run into jurisdictional and subpoena issues as the money is moved from digital wallet to digital wallet and eventually sold for traditional currencies.

A 2020 DEA threat report states that cartels traditionally have used a variety of ways to launder their illicit proceeds, including vehicles, small aircraft, and by couriers. They also use wire transfers, shell and legitimate business accounts, funnel accounts, and structured deposits to move money while concealing the routing of illicit proceeds. Compared to the investment required to purchase the equipment and labor to move money through these traditional methods, cryptocurrencies are a cheap way to launder their ill-gotten gains. Moreover, while a pallet of cash can draw law enforcement attention to smugglers, millions of dollars can be housed on a thumb drive and transported anywhere in the world without a being scrutinized by investigators. A drop in seizures of hard currency, from $702 million in 2012 to $368 million in 2019, suggests newer technologies including cryptocurrency laundering are gaining ground, according to the 2020 DEA report.

This has become particularly noticeable in Latin America. Santiago Nieto, the head of Mexico’s financial intelligence, has described that cartels use crypto to evade law enforcement by laundering their money through the purchase of small amounts of Bitcoin and transferring it across borders undetected. And while a 2018 Mexican law mandated that registered crypto trading platforms report transfers exceeding 56,000 Mexican pesos (approximately $2,800), Mexican law enforcement has neither the manpower nor the technological prowess to do much with the information collected.

Beyond illicit financial activities, recent attacks on the financial institutions themselves have been attributed to Latin American drug cartels. According to a new report from cybersecurity firm IntSights, cartels have leveraged a wide variety of scams and malware to breach banks in Colombia and Brazil. "The marriage of violent drug gangs and the underground hacking community is a significant emerging threat as we move into 2020. The two worlds are combining their influence, skills, and experience to achieve common goals, primarily of the financial variety," the report said.

The combination of cartels and crypto may be heading to our shores and we need to prepare. Nieto has stated that “there’s a transition to committing crimes in cyberspace, like acquiring cryptocurrencies to launder money…and the pandemic is accelerating it. Late last year, a Mexican human trafficker, Ignacio Santoyo, was arrested after being linked by bitcoin to a prostitution ring that exploited over 2000 women across Latin America."

U.S. law enforcement must be given the tools and resources to fight 21st century crime. Tommy guns and paper warrants won’t do. One underappreciated agency that is positioning itself for this fight is the U.S. Secret Service (USSS). Known to the public for protecting the president, the USSS’s original mission was in protecting U.S. currency by fighting counterfeiters. These days, Secret Service investigates different threats to the dollar, including through computer system hacks and digital currency crimes. Along with the USSS, the FBI, IRS, and Homeland Security Investigations also investigate crypto crimes — underscoring the critical need of the whole government to meet this threat head-on. The FBI recently demonstrated its capabilities by recovering 63.7 of the 75 Bitcoin paid by Colonial Pipeline Co., the operator of the U.S.’s largest gas pipeline, to a Russian ransomware group, worth approximately $2.3 million.

As we have seen this year, the frequency of ransomware attacks and other cybercrime continues to skyrocket and cryptocurrencies have emerged as a critical weapon for both nation state adversaries and cybercriminals. To protect not only the people of Texas’s 23rd but all of our citizens, the U.S. government must win the technological fight against the cartels. The battle has only begun.