Cybercrime Money Laundering Narco OpSec

#BlueLeaks: Drug Traffickers Increasingly Laundering their Money via Crypto, DEA Says

Dope traffickers are increasingly exchanging their illicit proceeds for cryptocurrency, according to a leaked 2019 Drug Enforcement Administration intelligence bulletin.

This bulletin stems from the BlueLeaks data dump and highlights a DEA Los Angeles Field Division investigation of a Southern California robbery crew that uses discounted bitcoin exchanges to entice victims.

At first, Shadow Banker was intrigued by this overlay of gritty street-level violence over the fabled Blockchain of tech-buzzword lore. He suspected that, maybe, the Glendale-based Armenian Power (AP-13) gang might be involved, thus opening up a potentially, sexy transnational dimension to the caper.

Shadow Banker even hit up the guy who solved the Tupac-Biggie murders and fingered Ray Dalio’s star protégé, Diddy, as the intellectual author of the Makaveli hit in Vegas to see if he could tap his law enforcement contacts for intel. But then a Google search dashed Shadow Banker’s hopes.  

Last November, two East Hollywood residents dubbed the ‘Discount Bitcoin Bandits’ by the Los Angeles District Attorney’s Office, Precious Lanay Fitzgerald, a 29-year-old mother, and 23-year-old Lawillie Joshua Hall, were both convicted of second-degree robbery, among other charges.

Precious ‘masterminded’ these armed rips (and often took her baby along for the robberies), “by using online notices and communications advertising the sale of discount bitcoins,” according to a LADA press release.

The DEA bulletin elaborates and says that in 2017, the gang started advertising crypto discounted from 5-to-40-percent below market value on Finnish peer-to-peer exchanger LocalBitcoins and classified-listing site Craigslist. 

After coordinating a meeting spot, the Bitcoin bandits jacked people out of $4,000 to $30,000 in cash and cryptocurrency in five separate rips that took place in L.A. and Orange County, said the DEA bulletin and LADA press release.  

In court, jurors heard testimony that Lawillie assisted Precious in two of the robberies by brandishing a gun in victims’ faces. Thus, there are likely other accomplices out there who aided Precious, and indeed, the DEA bulletin says that an “investigation of the larger conspiracy is ongoing.”

But who cares? With co-conspirators like Precious and Lawillie in the mix, this is not exactly a De Niro “Heat” crew. What is interesting, however, is that the D’s LFD have been “investigating drug traffickers exchanging their illicit proceeds for cryptocurrency” since January 2016.

The LAPD and DEA did not immediately respond to Shadow Banker’s request for comment.

Significance  

The narcs say this emerging laundering typology is significant because the “proliferation of cryptocurrencies has been undertaken by all manner of black-market actors seeking to exploit the process by which cryptocurrencies are exchanged for traditional or fiat.”

Beyond incels on the Dark Web: “Drug distributors at multiple levels of the trafficking spectrum now routinely exchange U.S. currency (USC) from domestic sales for BTC and other digital instruments,” says the DEA bulletin.

July 2019 DEA LFD Intelligence Bulletin on a crypto-armed robbery crew, source: DEA

Also, the “systematic targeting of parties to these exchanges poses hazards to both consumers and law enforcement personnel as it has become common for undercover officers and/or cooperating individuals to take part in these transactions,” the DEA says.

It is not immediately clear if some of the victims who reported the robberies to law enforcement were confidential informants doing buys at the behest of their public-safety handlers.

The DEA is on point though, in its assessment of crypto adoption by all levels of the narco-underworld. While, not specific to domestic USC conversion, Europol busted a cartel laundromat operating out of Spain and Colombia in 2018 that also used LocalBitcoins, albeit more conventionally than Precious and friends, to clean their money.

Narco-launderer arrested by Spanish police, soure: Spanish Guardia Civil

The Spanish laundering ring converted drug money into bitcoins, then changed the cryptocurrency into Colombian pesos and deposited it into Colombian bank accounts on the same day, said the Europol press release. Europol was able to identify € 8 million in drug money that this laundering network cleaned.

Additionally, the extradition of an executive for payment processing company Crypto Capital to Poland last year to face charges of laundering some $390 million for an unnamed Colombian cartel further highlights the “professional” escalation of the threat.

Even the ‘Ndrangheta, the feared Calabrian mafia, attempted to purchase coke from traffickers in Brazil with Bitcoin back in 2018, according to Italy’s national anti-mafia and anti-terrorism prosecutor, Federico Cafiero de Raho. Sadly, the deal fell through because the Brazilians were noobs at the time, who didn’t know how to process digital assets.

In 2019, however, Brazil’s Department of Narcotics Investigation nabbed a savvier narco-linked suspect running a crypto-mining operation in Porto Alegre. Brazilian cops “seized 25 cryptocurrency mining machines, which operated around the clock and are each valued at approximately $65,000,” according to a recent report authored by cyber-intelligence firm IntSights.  

Panning the lens back to the sunny Baja region that encompasses San Diego and Tijuana, Mexican bitcoin dealer Jacob Burrell Campos was sentenced to two years in federal prison last year “for operating an unlicensed money transmitting business in connection with his sale of hundreds of thousands of dollars in Bitcoin to over 1,000 customers throughout the United States.” 

Like the SoCal rip crew and the Spanish laundering ring, Burrell also conducted business via LocalBitcoins, according to the Department of Justice press release announcing his sentence. While the DOJ does not cite drug-related transactions, in this case, Burrell was operating on the border between Mexico and California – a prolific drug-trafficking corridor.

Burrell admitted to authorities that he “exchanged his U.S. cash, which he kept in Mexico,” with a San Diego-based precious metals dealer, “and that between late 2016 and early 2018, he and others imported into the United States, on an almost daily basis, a total of over $1 million in U.S. currency, in amounts slightly below the $10,000 reporting requirement.”

P2P Investigations Heighten Risks for UCs

Regarding the hazards these types of investigations pose to undercovers, the DEA bulletin says that cops “frequently pose as both BTC sellers and buyers in order to identify traffickers and money launderers during exchanges. The need for extreme caution in these situations is underscored by the inevitable propagation of such robbery schemes.”

The bulletin thus highlights the emerging risk of undercover operations targeting suspects who transact P2P, as opposed to those who operate on behalf of laundering organizations.

Illustrating this point is DEA’s acting financial investigations section chief, David Olesky, who spoke with Shadow Banker last Fall about the growing presence of Asian money-laundering organizations (MLOs) in the trap.

The DEA’s 2019 National Threat Assessment reiterates Olesky’s comments and says that cartels are increasingly “engaging in business alliances” with Asian MLOs. Olesky says that these Asian groups have become popular because they are continuously able to undercut prevailing market laundering rates, which run from 3-to-8 percent in the U.S., according to a money-laundering investigator who works for a rival agency.

Using the DEA’s narrative, a professional laundering arrangement between cartel-linked drug traffickers and Asian money-broker networks in L.A. would presumably insulate co-conspirators in the scheme from the exposed nature of independent contracts agreed upon by individuals.

Therefore, undercovers, armed with the full gamut of intelligence at the disposal of their agencies, can infiltrate these multi-organizational conspiracies, with some reasonable assurance of predictability and calm in their threat environments. 

The flip side to this argument is that individual actors in those arrangements absorb all of the counterparty risks of entities and organizations involved in the relationship. But Olesky also noted that money launderers are rarely targeted for violence in the Mexican underworld, relative to their peers involved in different aspects of the drug trade.

In general, Olesky said that ultra-violence between drug trafficking organizations is more likely to erupt over smuggling routes and container terminals at ports, for example.

Of course, the calculus likely changes here for launderers who get caught skimming from their clients, like the two Israelis who ripped off El Mencho and ended up getting murked at a Mexico City café in broad daylight last summer. 

Israeli launderers Alon Azulay (L) and ‘Johny Ben’ (R) murdered by CJNG, source: Borderlandbeat.com

Regardless, undercover agents tasked with investigating suspect cash-for-crypto transactions, enjoy none of the benefits of mutual criminal assistance treaties (MCATs). As such, they embrace all of the risk of going into criminal transactions without ‘Krysha,’ as the Russians say, in these types of P2P arrangements.

However, as this particular investigation reveals, the shadiness of these deals was obvious from the initial point of contact with Precious and her crew – and any decent undercover would sniff out a stickup from the jump.

The Future of Deviant Decentralization in the Trap

While the familiar bounce from the latest Bitcoin’s halving in May and the pandemic-stimulus-induced plundering of the dollar have propelled crypto valuations back into the media spotlight, regulators worldwide have been busy cleaning up the cash-for-bitcoin trading industry.

LocalBitcoins implemented basic user identification controls in March 2019 and became subject to Finland’s new anti-money-laundering statute for virtual currency service providers last November.

The exchanger now also has four different account tiers “distinguished by trade and transaction volume and a progressive verification system, where users gradually verify their accounts as their activity in the platform increases,” according to a June 2019 blog post that was updated this past February.

What’s more is LocalBitcoins has become a magnet for feds and undercover cops, according to users of Dread, a Reddit-like dark-web forum. Still, anonymous journalist and dark-website aggregator Dark.Fail told Shadow Banker that most cash-for-bitcoin trading still happens on LocalBitcoins and Paxful, a P2P exchange competitor.

Dark.Fail also posited that Dread could be compromised by law enforcement. “I’ve never been able to get over Hugbunter’s (the founder of Dread) disappearance of two-plus months last year,” they told Shadow Banker. Both Dark.Fail and Dread are referenced in the BlueLeaks by at least one Federal Bureau of Investigation intelligence bulletin.

May 2020 FBI Intelligence Bulletin that puts heat on Dark.Fail & Dread, source: FBI

With the advent of so-called Know-Your-Customer kits, where people purchase the identity of another via dark-web portals to pass KYC on exchanges, and the offering of already-verified exchange accounts, there are still manifold ways to hack crypto-exchange AML controls.

Regardless, more sophisticated crypto-launderers are migrating to privacy coins like Monero to deter financial surveillance from law enforcement. They are using P2P exchangers like LocalMonero and other services to move their money.

But the broader theme is how the pandemic is increasingly driving people away from cash and into digital-first, if not digital-only payment behavior. If this trend continues, then crypto-adoption will only proliferate among narco-money launderers and supply chain financiers.

Additionally, with Latin American drug cartels likely partnering with Asian criminal enterprises to expand cocaine distribution throughout the U.S., according to another recent FBI intelligence bulletin exposed in the BlueLeaks, this will inevitably escalate another geoeconomic vector for deviant decentralization.

May 2020 FBI Intelligence Bulletin, source: FBI

A May 2020 INTERPOL Purple Notice on transnational cocaine trafficking also exposed in the leaked 270GB dump of web-hosting firm Netsential further highlights the unholy alliance between LatAm and Asian traffickers.

May 2020 INTERPOL Purple Notice on Transnational Cocaine Trafficking, source: INTERPOL

The global law-enforcement assistance agency suspects that a “South American Drug Trafficking Organization (DTO) has been targeting Asian seaports for transshipment of cocaine, onward to Europe and/or Australia,” according to the document. In the Fall of 2019, authorities in South Korea, Malaysia, and Japan intercepted maritime shipments of coke in various quantities.

The Malaysian cops claimed the biggest haul, with 12 tons of blow, “the biggest drug seizure in Malaysian history,” secreted inside “three containers filled with 60 sacks of coal.”

“Advanced technology had been used to conceal the cocaine and as such, traditional methods of scanning were ineffective. In such circumstances, the drugs are not visible to the naked eye and standard field drug testing kits and narcotics canine units are not successful,” says the INTERPOL notice.

Royal Malaysian Police stand guard over 12 tons of coke secreted in coal: source, INTERPOL

The upshot here is that illicit financial networks are likely to parallel black market supply chains, connecting the same counterparties involved in narcotics transactions.

Despite growing geopolitical tensions and trade dislocations between the U.S. and China over the virus and the closing of capital markets in Hong Kong, the link between deviant decentralization, Asia, and the U.S. narco-underworld may become more rooted in the future.

In closing, Shadow Banker feels zero sympathy for the marks that got jacked by Precious and her crew. Victims deserved to get REKT for being so dumb, especially the one that flew all the way from Connecticut to get ripped off in L.A., according to DEA intelligence.

But then again, it’s L.A: The world capital of getting ripped off. So, can’t be too hard on them.

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