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5 Steps for Uncovering Cryptocurrency Activity

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The exponential growth of cryptocurrency has introduced new complexities when searching for hidden assets. Whether a client is going through a divorce, a business breakup, or another situation that requires financial due diligence or investigation, financial and legal professionals (and their clients) need to watch for any signs that the other party may have cryptocurrency.

Any suspicion of cryptocurrency demands careful exploration, which includes the following steps.

  1. For litigation, subpoena cryptocurrency brokerages and trading platforms in the United States. If the counterparty is dealing in cryptocurrency, chances are high that one of the top 20 brokerages or trading platforms is involved, and many of them will honor a valid subpoena for information.
  1. Search for physical evidence of cryptocurrency activity. When looking for evidence of cryptocurrency activity, conduct an old-fashioned search for tangible items associated with cryptocurrency, such as hardware wallets, Cryptosteel-type physical backups, paper address certificates, and recovery seed phrases.
  1. Mine available financial data for intersections between crypto and fiat currency. Forensic accountants should look for any payments to or from any known cryptocurrency brokerage platform or trading app. Other signs include large, unexplained cash withdrawals, which may have been converted to crypto on the black market or through Bitcoin ATMs (BATMs), or expenditure patterns that suggest a dollar-cost averaging strategy of crypto investment.
  1. Target cryptocurrency in discovery demands. Beyond asking whether the other party has engaged in cryptocurrency transactions, attorneys need to request specific information. For example, discovery demands should include specific identification of any cryptocurrency wallets, as well as the Extended Master Public Key(s) (xPubs), which allow read-only viewing of wallet transactions.
  1. Search the other party’s data and devices. After securing legal access, forensically examine the counterparty’s digital universe for detailed evidence of cryptocurrency wallets, blockchain addresses, active and deleted internet history related to cryptocurrency transactions, and any interaction with brokerages and platforms. (This is often the only effective way to discover peer-to-peer cryptocurrency activity.)

Following the above game plan will help uncover whether a counterparty has engaged in cryptocurrency activity and obtain critical information for valuation. For assistance with any or all of these steps, contact the NGH Group. Founder Nicholas Himonidis is a Certified Computer Forensic Specialist, Certified Fraud Examiner, and Certified Cryptocurrency Forensic Investigator who frequently lectures on crytpocurrency and blockchain investigations.