Bench & Bar

SEP 2018

The Bench & Bar magazine is published to provide members of the KBA with information that will increase their knowledge of the law, improve the practice of law, and assist in improving the quality of legal services for the citizenry.

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| SEPTEMBER/OCTOBER 2018 20 concert with investigators from 19 other countries. Darkode's users, added to the forum by invitation only, bought and sold criminal cyber products and shared trade information, in what the FBI called "a think tank for cyber criminals." e wholesale distribution of fraudulent schemes allows hackers to profit from their expertise, while lowering the barrier to entry for new cyber- criminals and multiplying the impact on potential victims. 6 e Council on Foreign Relations warns of broader national security implications stemming from the malicious use of cryp- tocurrency, including as a known funding source for international terrorist organiza- tions like Islamic State and in large-scale ransomware attacks like the global assault of the WannaCry worm, apparently deployed by the North Korean government in 2017. 7 The use of Bitcoin was also reportedly instrumental to the 12 Russian operatives indicted earlier this year for an alleged multi-faceted hacking scheme that was designed to influence the 2016 United States presidential election. 8 Cryptocurrency is not only linked to crime as a tool of the trade, virtual currency and its investors may be more susceptible to fraud and theft than traditional investors using fiat currency. e U.S. Securities and Exchange Commission has issued spe- cific warnings to investors that they may be more susceptible to theft and fraud in the process of investing in or with cryp- tocurrencies and could have a harder time recovering any losses incurred. 9 One research group estimates that as much as 14 percent of available Bitcoin and Ethe- reum, the two largest cryptocurrencies, may have been stolen or compromised by hackers. 10 With respect to investment in crypto-currency, Zur notes that "this is a highly speculative market and hard to pre- dict in the long-term, so investors should be very cautious, especially when thinking about new trendy cryptocurrencies that hype and crash." 11 TWO SIDES OF THE SAME COIN On its face, cryptocurrency seems like the perfect medium for illicit transactions, offering the anonymity of cash, without the logistical constraints of moving and storing cash. A group of researchers in Australia posits that up to 44 percent of all Bitcoin transactions may be related to criminal activity in some way, arguing that Bitcoin's desirability to criminals is actually respon- sible for much of the currency's market value. 12 However, cryptocurrencies like Bitcoin and Ethereum are truly only pseu- do-anonymous, as they rely on a recorded blockchain for their very existence. Block- chain provides a public and permanent ledger of all historical transactions made with the currency, which means the move- ment of cryptocurrencies actually can be traced, provided that the identity of the user holding the virtual wallet is known. Users can be unmasked through various data leaks, tracing methods, or when they interface with exchanges to convert their cryptocurrency to traditional fiat currency. 13 Zur argues that criminal activity currently has less market impact on cryptocurrency value than it has in the past. Zur explained, "In the past we identified the rise of dark web marketplaces as a main factor in cryp- tocurrency value. For example, Bitcoin price plummeted after Silk Road had been seized. Today the cryptocurrency market is much bigger and more diverse, so the influ- ence of dark web marketplaces on its value is less significant, but still exists." He added that "Ransomware and other cyber attacks that require ordinary people to buy cryp- tocurrency can also influence the value," particularly in the case of the a world-wide attack like the WannaCry in 2017. 14 e traceability of Bitcoin transactions and the growing sophistication of law enforce- ment in analyzing its blockchain appear to be driving criminals to use more pri- vacy-focused options like Dash, Monero, or ZCash, which further conceal users' information to shroud transaction histo- ries. 15 Federal law enforcement groups have urged Congress to act to counter challenges raised by anonymity-enhanced currencies like Monero, by forcing cryptocurrency exchanges to follow established anti-money laundering standards required of traditional banking institutions and requiring them to provide access to user data when it is sought by investigators. 16 Even with access to blockchain data, tracing transactions made in cryptocur- rency is more resource-intensive than tracing traditional bank transactions. e need for analytic support is met, at least in part, by partners and consultants from the private sector. For example, firms like Chainalysis, as its name suggests, specialize in analyzing and extracting evidence from existing blockchain data. 17 Chainalysis not only works with government entities to enforce criminal law, they also lend their services to currency exchanges and other private companies to aid in compliance and prevent crime online. AN OUNCE OF PREVENTION As criminals continue to use cryptocur- rencies in the shadowy corners of the web where law enforcement attempts to shine light, private attorneys can play an import- ant role in protecting their own assets and those of their clients from threats. In a world where ready-to-use hacks can be pur- chased online, every attorney in every type of firm should be focused on protecting sensitive information stored on computer networks and transmitted digitally to clients and other parties. is includes obvious measures like keeping anti-virus software up to date and encrypting data. It also includes less obvious precautions like securing physical office spaces, wireless networks, and training employees to rec- ognize—and resist—social engineering that is often at the heart of hacking attempts like phishing scams. For those who advise other businesses in the scope of their prac- tice, advising clients to take these same preventive measures can provide mutual protection. Zur told attendees at the 2017 Interna- tional Bar Association Conference that attorneys should be on the defensive. "I work with several industries: financial, legal, law enforcement, corporate[] . . . the legal market is way, way behind in understand- ing the threats," Zur said. He also noted that attorneys often downplay their role in securing data, placing responsibility on IT support and saying things like, "[t]hat's a technical issue" or "[i]t's not our problem." 18 In his commentary for this article, Zur explained, "Lawyers are lucrative targets due to their access to confidential infor- mation and financial assets from one side, Features: CRYPTOCURRENCY

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