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You Can Run But You Can’t Hide: U.S. Government’s Cryptocurrency Tracing Capacity on Full Display in Civil Forfeiture Action

The U.S. Department of Justice (“DOJ”) filed a civil forfeiture complaint detailing two hacks of virtual currency exchanges by North Korean actors. These actors stole millions of dollars’ worth of cryptocurrency and ultimately laundered the funds through Chinese over-the-counter (“OTC”) cryptocurrency traders.1 The complaint filed in federal court in Washington identified 280 accounts that were used to launder the stolen funds.

The complaint details two related hacks of virtual currency exchanges.  In the summer of 2019, a virtual currency exchange was hacked by an actor tied to North Korea, who stole over $272,000 worth of alternative cryptocurrencies and tokens, including Proton Tokens, PlayGame tokens, and IHT Real Estate Protocol tokens. The funds were laundered over several months through multiple intermediary addresses and other virtual currency exchanges in a process known as “chain-hopping.” In an effort to obfuscate the transaction path, the defendants converted the traceable cryptocurrency into Bitcoin, Tether, or other forms of cryptocurrency that are more difficult to trace. Despite the sophisticated laundering techniques used, law enforcement was able to trace the funds.

The second hack, which involved a U.S. based company focused on the Algorand blockchain, occurred in September 2019. In this instance, the North Korea associated hacker gained access to the company’s virtual currency wallets, funds held by the company on other platforms, and funds held by the company’s partners. The hacker stole nearly $2.5 million and laundered it through more than 100 different accounts at another virtual currency exchange. The funds from both of the hacks were allegedly laundered by the same group of Chinese OTC actors. 

DOJ’s announcement last month reveals two noteworthy developments in this type of investigations: U.S. Cyber Command will now be a player in similar investigations and the Cryptocurrency Strike Force’s expertise and skill in tracing and seizing virtual currency are beyond what criminals previously thought possible. This case is the most recent example of the U.S. government’s use of sophisticated tracking tools to identify and take action against parties that are using blockchain technology for nefarious purposes.

[1] In cryptocurrency markets, over-the-counter trades are also facilitated by OTC brokers who negotiate directly with the buyer and seller. The OTC broker finds buyers and sellers for a trade. OTC trades are thought to offer greater liquidity and increased anonymity. 

© Polsinelli PC, Polsinelli LLP in CaliforniaNational Law Review, Volume X, Number 259


About this Author


Richard Levin brings his experience as a senior legal and compliance officer on Wall Street and in London to bear in advising clients on corporate, securities and regulatory issues. A problem-solver by nature, his practice focuses on helping financial services and technology (FinTech) clients identify and address regulatory issues as they build their businesses.  

The FinTech sector is experiencing rapid changes that are producing innovative new technologies: digital currencies, blockchain technology, peer to peer lending, robo advisors, crowdfunding portals, and...

Melissa S. Ho Shareholder Phoenix Antitrust, Antitrust - Health Care Compliance, Fraud and Abuse, Stark, Financial and Securities Litigation, Financial Technology, Regulation Government Investigations, Health Care Litigation

Melissa Ho is a trial attorney with a detailed understanding of government regulations and business litigation. A former prosecutor, she is sympathetic to the disruption and chaos a government inquiry and criminal investigation can cause. 

Melissa defends individual clients against a wide variety of criminal allegations, including health care fraud, qui tam, RICO violations, bank fraud, real estate fraud, mortgage fraud, foreign corrupt practices, securities fraud, water and air quality violations, government corruption, procurement and public fraud, professional misconduct, civil and criminal forfeiture, licensing violations, parallel proceedings, and computer crimes, including juvenile delinquency matters.

On behalf of corporate entities, Melissa has conducted numerous internal investigations for clients, both self-initiated and in response to government inquiry. She represents individuals and businesses in investigations by all types of government entities, including the Federal Bureau of Investigation, Office of Inspector Generals (state and federal), Securities and Exchange Commission, Environmental Protection Agency, Internal Revenue Service, Centers for Medicare and Medicaid Services (CMS), Department of Veterans Affairs and local police. She also assists clients in performing their own internal investigations and in developing compliance programs to prevent wrongdoing by employees.

Melissa has experience handling complex civil litigation matters, including the defense of civil RICO, 42 U.S.C. 1983 claims, election law, public official liability, consumer fraud, and general tort liability.

Melissa works as a liaison between the business and litigation professionals both in the United States and in Asia to formulate comprehensive plans in response to contract disputes and government inquiries. Combining her government regulatory knowledge, litigation skills, and knowledge of Asian cultural practices, Melissa provides sound business advice for clients with interests both nationally and internationally.

Melissa’s representative experience includes:

  • Defense of government inquiries (civil and criminal) 

  • Advising companies (both privately held and publicly traded) on litigation matters

  • Preparation of witnesses for depositions, arbitrations, and testimonials under oath

  • Coordination of rapid response and crisis communications for high profile clients 

  • False Claims Act representation, compliance and training

  • Advising clients with matters before the U.S. Department of Treasury Office of Foreign Assets Control

Andrew T. Fox Phoenix Polsinelli Government Investigations Labor and Employment Commercial Litigation Litigation and Dispute Resolution

As a member of Polsinelli’s Government Investigations practice, Andrew assists clients in all aspects of white collar criminal defense and internal corporate investigations. Working to understand each client’s unique situation, he helps guide clients through government inquiries and provides counsel that aligns to their business strategies. Andrew has experience drafting briefs, memoranda and responding to discovery requests.

Prior to joining Polsinelli, Andrew served as a law clerk to The Honorable Judge Douglas L. Rayes on the United States District Court for the District of...