Decoding Crypto Crime: A Comprehensive Guide for Law Enforcement

Introduction

Cryptocurrencies bring decentralization, speed and borderless access — features that enable innovation but also attract criminal exploitation. This guide introduces the most common crypto crimes, technical signals investigators should look for, and recommended investigative practices.

Understanding Cryptocurrency-Related Crimes

Crypto crimes range from investment frauds and phishing to complex laundering and ransomware—each requires a distinct mix of on-chain analysis and off-chain cooperation.

Common Offense Types & Investigation Tips

Cryptocurrency Investment Schemes (Ponzi & Pyramid Scams)

Fraudsters promise unrealistic returns, relying on new investor funds to pay earlier participants. Examine victim deposit addresses, trace fund movement, and look for centralized exchange cash-outs.

Investigation tips:

• Collect victim wallet addresses and transaction hashes.
• Analyze on-chain flows (Etherscan, Blockchain explorers).
• Identify timely withdrawals to centralized exchanges and request KYC data from them.

Extortion & Sextortion

Attackers threaten victims (often with fake evidence) and demand crypto payments. Trace addresses embedded in extortion messages, and monitor mixers or privacy wallets used to obfuscate funds.

Rug Pulls & DeFi Exit Scams

Developers drain liquidity from DeFi projects using hidden admin privileges in contracts. Analyze smart contract code for backdoors and monitor sudden liquidity removals on DEXs.

Phishing Scams

Fraudsters clone websites or send malicious emails to capture private keys or approve malicious transactions. Check domains, SSL certs, and EIP-712 signature approvals and teach victims to revoke suspicious approvals.

Man-in-the-Middle (MITM) Attacks

MITM attacks often exploit compromised DNS or local networks to redirect users to fake wallets or wallet managers. Verify SSL certificates and confirmed download sources during investigations.

Fake Exchange Websites

Fraudulent exchanges mimic legitimate platforms to steal credentials or deposits. Use WHOIS lookups, report domains to registrars, and trace deposits to exchanges for KYC requests.

Secondary (Recovery) Scams

After initial theft, scammers pose as “recovery agents” asking for fees to retrieve funds. Warn victims about double victimization; monitor impersonation activity on Twitter/Telegram.

Technical Signals & Forensic Insights

• Watch for mixing services (Tornado Cash, Wasabi) and privacy coin transfers (Monero).
• Analyze timing and value correlations to link addresses across services.
• Inspect smart contracts for admin keys or capability to drain funds.

Challenges & Solutions in Crypto Investigations

Best Practices for Law Enforcement

Key Evidence to Collect

• Wallet addresses (victim & suspect)
• Transaction hashes and blockchain explorer links
• Screenshots/emails of phishing or extortion attempts
• Smart contract addresses and source code snapshots

Recommended Tools

• Blockchain analytics: Chainalysis, Elliptic, TRM Labs
• Smart-contract auditing: CertiK, SlowMist
• Exchange cooperation: Request KYC/AML data from custodial services

Training & Collaboration

Provide regular blockchain forensics training, establish liaison programs with national cybercrime units, and encourage standardized victim reporting to detect repeated wallet usage.

Conclusion

Crypto crimes are evolving, but every on-chain transaction leaves traces. With structured frameworks, international cooperation, and the right forensic tools, law enforcement can trace illicit flows, recover assets, and disrupt networks.