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New Study Highlights Use of Crypto in Fraud

February 15, 2023

Contributed by: Meaden & Moore.

Every two years, the Association of Certified Fraud Examiners (ACFE) publishes its Report to the Nations, which highlights key fraud trends. New to the study in 2022 were statistics on the role cryptocurrency plays in fraud. Here are the details.

Why is crypto in the spotlight?

Cryptocurrency is “digital money” that’s usually issued and controlled by software developers and accepted as payment by an increasing number of individuals and businesses. Also known as virtual currencies, cryptocurrencies can be transferred, stored or traded electronically. Bitcoin and stablecoin are common examples. Each cryptocurrency has an equivalent value in real currency. Cryptocurrency can be digitally traded between users and can be purchased for (or exchanged into) real currencies, such as U.S. dollars or euros.

A recent survey found that one in five Americans has invested in, traded or used cryptocurrency. Despite its growing popularity, crypto is sometimes associated with black market transactions because it’s hard to trace to a specific person. Anonymity makes it easy for criminals to skirt international borders and regulations.

What did the ACFE find?

For the first time in its 24-year history of publishing its biennial fraud study, the ACFE’s latest report, “Occupational Fraud 2022: A Report to the Nations,” reveals the prevalence of cryptocurrency in fraud schemes. The study found that 8% of schemes involved crypto.

The ACFE expects this percentage to increase as more businesses engage in cryptocurrency transactions. For example, companies may accept crypto payments from customers or pay certain vendors with crypto. The use of virtual currency in day-to-day business operations may seem appealing because there aren’t transaction fees or exchange rate risks when dealing internationally. However, the use of crypto comes with potential fraud risks.

How is crypto used to defraud?

The use of crypto in a business’s regular operations provides new opportunities for dishonest individuals to perpetrate fraud. In fraud cases involving crypto, it was most commonly used to make bribery and kickback payments (48%) and to convert stolen assets (43%).

In addition, the ACFE study found that some fraudsters stole cryptocurrency assets outright, while others manipulated reported cryptocurrency assets on their financial statements. Laypeople are generally unfamiliar with cryptocurrency, allowing opportunistic individuals to hide their fraud schemes using shady reporting practices.

Risky business

Many business owners are understandably hesitant to enter the volatile world of cryptocurrency transactions. However, pressure from supply chain partners, contractors and employees to receive cryptocurrency payments may force them to take the plunge.

Forensic accounting experts can help facilitate a secure transition to crypto by conducting risk assessments, drafting or enhancing policies and procedures, and providing customized training for company personnel.

Making Sense of Cryptocurrencies

Check out the AGN Global Business Voice five-part series, Making Sense of Cryptocurrencies, for further insight. Published in May – September 2021.

Part #1: Latest developments, mining and environmental concerns.
Part #2: Likely impact of the authorities and regulation and which cryptocurrency to choose.
Part #3: Real-life practicalities of cryptocurrency ownership – buying, storing and spending.
Part #4: Arguments in favour and against, and the effects of regulatory changes.
Part #5: Views of the professionals within our own member firms.

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