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1. Introduction
Like crows captivated by shiny objects, it is difficult for many individuals to look away when a new, innovative fraud scheme presents itself. With individuals quarantined at home and bored, surfing the web for stimulation and uncertain economic conditions setting financial criminals on the prowl, fraud schemes have proliferated during the COVID-19 pandemic. Partly due to an increase in online time and the meteoric rise in social media attention, crypto-scams have taken flight. Brooks (2021) notes that between October 2020 and June 2021, Americans have lost $80m in cryptocurrency fraud schemes and the Federal Trade Commission (FTC) reports that they received over 7,000 complaints from consumers regarding crypto-investment scams.
A largely uninformed public and new technology, driven by social media influencers and high media visibility, creates an amenable environment for the evolution of new fraud schemes. In this paper, we integrate the fraud triangle theory with the space transition theory to describe the evolution of traditional fraud schemes committed in physical space to digital asset schemes that operate in digital space. We also address six currently operational crypto-based or crypto-enabled fraud schemes that are based on historic fraud schemes: ransomware, price manipulation, fraudulent disclosures, pump and dump schemes, Ponzi schemes and spoof sites and fake apps. We conclude with implications for regulators and anti-financial crime professionals.
2. Space transition theory the nature of digital assets
2.1 The nature of cryptocurrency and the space transition theory
By some estimates, cryptocurrency could replace up to one-fourth of national currency within a decade (Samejo et al., 2018), and at the same time, Kethineni and Cao (2020) state the cryptomining attacks increased over one thousand percent in early 2018. Rob Wright, of Europol, estimates that billions of dollars of criminal money is laundered annually with cryptocurrency (Kethineni and Cao, 2020).
The problem is that the same features that make cryptocurrency appealing to the public at large make it useful for crime (Potgieter and Howell, 2021). Cryptocurrency provides a new opportunity to facilitate extant financial crime schemes, including Ponzi schemes, randsomeware (Kethineni and Cao, 2020), price manipulation and “pump and dump” projects (Cengiz, 2021). Low barriers to entry make it easy for criminals to elevate existing fraud schemes with digital assets (Kethineni and Cao, 2020). Further, digital...