How to Blow the Whistle on Cryptocurrency Scams Using the new Anti-Money Laundering Statute (AML)

January 5, 2023

If something seems to be too good to be true, it probably is. Websites that offer investors incredible returns without any disclaimers or caveats are probably outright fraudulent.

Even sites that appear legitimate can’t always be trusted. Celsius, which offered high interest on cryptocurrency deposits, had a meltdown; FTX appears to have been basically a Ponzi scheme; and we’ll see how much emerges from the Blockfi bankruptcy. All three sites seemed legitimate on their face but had certain disclaimers that should have given investors pause. They indicated that cryptocurrency deposits were not really being segregated but were comingled and used for other purposes. There was also no guarantee that investors could withdraw their principal. Small-time depositors who were only hoping to earn a little interest on their crypto bled billions from these schemes.

Those caught in the Celsius and FTX collapses might have benefited from early whistleblowers providing information under programs like the SEC whistleblower program about how the companies were internally mismanaging funds and externally fleecing investors and depositors.

Further, with the passage of the new anti-money laundering statute, it’s also believed that billions are being laundered through banks under the guise of legitimate cryptocurrency transactions hiding transfers to or from a prohibited entities or that are criminal in some other way. For instance, since marijuana dispensaries that are legal under state law are still prohibited from using federally regulated banks, these businesses often conceal the origins of the funds and the true nature of the business from their banks – and that’s money laundering.

The Role of the Anti-Money Laundering Statute in Protecting the Financial System

The Anti-Money Laundering (AML) statute is meant to short-circuit criminality and to keep prohibited actors from accessing the federally regulated banking system. Under the AML, whistleblowers can receive up to 30% of the sanction levied on or the government’s recovery from the money launderer. With billions laundered each year, that’s hundreds of millions of dollars up for grabs in AML whistleblower awards (and Congress just strengthened the laws protections for whistleblowers).

The Threat of “Love Scams” and Other Cryptocurrency Schemes

In a common cryptocurrency scheme, a pop-up site will promise extravagant returns and even show performance surpassing all expectations, thereby enticing you to double-down on your investment. Then when it’s time to withdraw your funds, the site never lets you do it. That’s when the second wave of the scam kicks in and they claim that in order to withdraw the funds, you need to deposit money for taxes or regulation or identity confirmation or some other bogus reason.  However, it’s all bogus – your money is in a black hole and is never coming out. On top of it all, the identifying information they asked you for upon deposit (they may have ironically asked you for documentation under the KYC (know your client) rules and asked for documents that include driver’s license, social security cards, credit cards, and banking information will unfortunately be is now on a list that is sold and re-sold, exposing you to additional scams, theft, and loss.

A variation of this is the “love scam,” where sites like Tinder, WeChat, or other dating sites (or even “accidental” texts) are used to build up an online relationship. Often the scammer will encourage the victim to invest, or just to send them money (or crypto). The love part of the scam relationship is built up through constant messaging which will lead to attempts to video chat after the scamster learns intimate details about the person. The video then will attempt to put the individual in a compromising position and the other side will surreptitiously film it to use the content to attempt to blackmail victims into cooperating, especially if the victim is married or acting contrary to their public persona in some other way.

A cryptocurrency litigation law firm can tackle some of these issues through the various whistleblower programs like the SEC whistleblower program, CFTC whistleblower program and AML whistleblower programs, or possibly through a class action – if there’s a solvent defendant to sue.

Unfortunately, there’s often not much to be done for individual victims of pop-up or love scams, because the criminal enterprise is generally outside the US and cloaked in anonymity. Certain law firms will take these cases on an hourly paid basis or for a flat fee, but it’s generally throwing good money after bad because even where a judgment is obtained it’s generally uncollectable. You may even need a paid consultation with a lawyer about your options because one of these scams may have deep ramifications. In any event, don’t believe the scamster’s further lies, don’t send them any more money – their demands will never end. You may even want to seek psychological help, as falling victim to one of these scams can unfortunately wreck one’s nerves and have emotional consequences. Know that others have been through it before, and things will eventually get better.

Seeking Legal Assistance for Cryptocurrency Investment Disputes and Whistleblowing Cases

All this brings us back full circle with the rule that something which seems too good to be true probably is. It’s best to consult with a registered financial professional before investing in novel products, and further, it never hurts to consult with a law firm that has a track record in the space to learn your options.