Source: The Economits
No one likes to be called a "tax man. Donald Rumsfeld, former U.S. Secretary of Defense, once managed a budget larger than some countries' economies. Nevertheless, even he sometimes struggles with confusing tax rules: every year he writes to the IRS complaining that he has "no idea" if he filled out his tax return correctly. So it's not surprising that when the phone rings and from there someone in a business voice claims that you have underpaid taxes and will be put in touch with an advisor to pay the balance, ordinary people shudder to believe everything they are told.
Be that as it may, it invariably turns out to be a scam. It is very rare for taxpayers to personally call individuals about their taxes. If you are very lucky, they will send you a letter a year later, and to the wrong address. And, of course, they won't threaten to arrest you if you don't immediately transfer the money, as is often the case with fraudsters.
Such schemes have become more common recently. According to the British Banking Finance Association, the number of phone calls from scammers posing as tax collectors almost doubled last year. In other countries, there has been an equally significant increase.
Even though overall crime rates remain low in rich countries, one cannot ignore the impressive growth in cybercrime - crimes committed partly or entirely digitally. According to Crime Analysis England and Wales, the best indicator of long-term trends in the UK, there were 3.8 million cases of fraud in 2019, mostly online, accounting for a third of all crimes committed. That figure has risen every year since 2017, when the government first began monitoring the figure. About 7 percent of adults have been victims. Three-quarters have lost money in the process, with 15% losing more than 1,000 pounds ($1,390). In America, the number of reported Internet fraud cases increased by 69% last year. Recorded losses (not including bank or credit card fraud) reached $4.2 billion, three times more than in 2017.
Other types of Internet crime are also on the rise. Computerized phone spam calls and text messages designed to defraud people are generating billions of dollars a year for criminals. Illegal gambling Web sites have increased, many of which steal their customers' money. Digital technology makes it easier to commit many "analog" crimes. Drug traffickers use cryptocurrency to accept payments and circulate funds. In their criminal business, they use specialized software to encrypt messages. "There is no serious organized crime today that does not use some form of digital technology," states Nigel Leary of the UK's National Crime Agency (NCA).
Most significant over the past year has been the rise of "ransomware" - hacking attacks in which victims' files are blocked until a ransom is paid. In the past, such attacks have been very blunt and direct. Ransomware came in the guise of spam messages, and the victims were usually ordinary people's computers. A small amount of money was usually requested to unlock them, so that people could pay it for sure.
These days, hackers attack large organizations and demand more serious ransoms (see diagram below). Malware infiltrates certain computer systems. It steals data and then locks it up. Then a ransom is demanded to unlock the files or, increasingly, to keep the data from leaking online (since almost all companies keep backups of their data these days and are not afraid of losing them). Almost always the ransom is requested in bitcoins. Cybersecurity firm Chainalysis says the average bitcoin ransomware amount increased by 311% last year compared to 2019, to about $350 million. Victims tend to be businesses, but increasingly governments and their agencies, including the police, have been targeted. On April 27, police in Washington, D.C., reported a hacking attack. Criminals threatened to reveal the identities of police informants to urban crime groups if authorities did not pay a ransom.
Ransomware is the "biggest threat" in the world of organized crime, says Alan Woodward, an information scientist at the University of Sussex and consultant to Europol, the EU police agency. On April 29, Alejandro Mayorcas, the U.S. Secretary of Homeland Security, called them a "national security threat." The damage from ransomware is enormous. Maersk, a global shipping company, wrote off $300 million in losses related to a ransomware attack in 2017. Travelex, a British currency trader, went bankrupt last year, shutting down 1,300 jobs. A hacker attack that caused the company's systems to shut down in late 2019 was partly to blame. The company spent about $2.3 million to buy back 285 bitcoins, but that didn't save it from a £25 million loss. Travelex attributed this to the effects of a hacking attack.
The size of the ransom demands can often be perplexing: in a March attack on the Broward County school system, including Fort Lauderdale, Florida, criminals demanded $40 million in bitcoins. In reports released by the hackers, one of the district's negotiators was incredulous at the criminals' demands: "You know we don't have anywhere near that amount!"
Indeed, most budget organizations don't and can't have that kind of money. But, on the other hand, the consequences of not paying could result in even greater losses. In Baltimore County, Maryland, last year schools were forced to stop online learning for days because of a ransomware blockage. In 2019, a hacking attack on the neighboring city of Baltimore cost its taxpayers $18 million. Hospitals were also hit by similar attacks during the pandemic. France reported 27 attacks on hospitals last year. The total number of ransomware attacks for 2020 here increased by 255%. In Germany and the U.S., the attacks temporarily suspended medical care.
Bitcoin pirates
The criminals involved in such attacks are a rather motley group. Many of them seem to be based in Russia, other parts of Eastern Europe, or China. In Russia and Belarus, cybercriminals live without problems: the state tolerates them as long as they attack foreigners exclusively. Some of the local groups are reportedly affiliated with intelligence agencies.
However, cybercriminals do not seem to operate as part of organized crime groups like drug cartels or the mafia. Their strength lies in decentralization. Organizers may employ separate elements responsible for each specific aspect of cybercrime. One entity may write and sell software. Another may conduct an attack on the targets' computers. A third handles negotiations and ransomware. An entire attack may be funded by several unconnected criminal masterminds. In doing so, they may never know each other's names or locations.
"It used to be that crimes like bank robbery were bushy," says NCA's Leary. Large-scale operations like the 1983 Brinks Mat robbery, in which £26 million worth of gold, diamonds and cash (£100 million in today's money) were stolen from a warehouse at Heathrow Airport in London, required a huge staff of specialists who knew and trusted each other. These days, large-scale crime with the help of technology is gaining industrial momentum. "The barriers to entry have become very low," says Leary.
Much of this is because it's as if the entire Internet infrastructure is specifically designed to make hacking attacks as easy as possible. Cryptocurrency is the key to everything here. "Ransomware criminals like to use bitcoin," argues Kemba Walden, a lawyer in Microsoft's digital crime unit, "because it's very liquid and relatively anonymous." The ultimate recipient is anonymous unless his or her real identity is linked to a virtual address. Criminals can trade bitcoins among themselves. Cashing in the proceeds into real money is risky: Most rich countries have strict requirements for bitcoin exchanges to identify their users. But it's not impossible. Some exchanges in countries with less-developed information laws apply more lenient requirements. And koins can be "flipped" - exchanged between cryptocurrencies to launder money - to conceal their origin and then sold on legitimate exchanges. According to Walden, in Russia and China it is "just incredibly difficult" to trace stolen money.
Other technological innovations also play an important role. Sim boxes, which allow you to "cheat" (hide the origin of) phone calls, are sold for perfectly legitimate purposes, such as for marketing firms. But they also allow criminals to spam people or communicate without revealing their location. Tor, software that anonymizes Internet connections by sending data around the world, allows the "darknet" to flourish, in which criminals peddle their wares anonymously. "Bulletproof" hosting - server parks with high levels of security and privacy - work as virtual safe havens on which compromised data can be deleted at any time: of course, before the police can access it.
What does the future hold for this type of crime? As the number of ransomware programs grows, so does the industry that offers protection against cyberattacks. This criminal activity is "becoming more and more visible," says Cardiff University's Michael Levy, because of attacks like the Maersk attack. Organizations are trying to beef up defenses. That said, many don't report hacking or fraud attempts. Data breaches are not only harmful in and of themselves. People are often embarrassed or uncomfortable about reporting such crimes to the police. The costs due to cybercrime can also be indirect. Banks and insurers often compensate people for losses. Security is improving, but crime is also becoming more sophisticated and profitable.
Police are concerned that "analog" criminals are turning to cybercrime, and vice versa. "Today, the darknet is being used to sell stolen property, drugs and firearms," Leary says. In raids in Belgium in March, police seized 28 tons of cocaine, as well as cash, weapons, police uniforms and a torture chamber housed in a shipping container. The criminals reportedly used Sky ECC, an encrypted phone network sold by a Canadian firm. It seems as if their phones were specifically designed to conceal criminal activity: they included end-to-end encryption, disappearing messages and no GPS tracking. Rate plans were paid for in bitcoins. This gave them more anonymity - at least until European police forces managed to plant their own malware on their phones to spy on criminals.
Governments began to take cybercrime more seriously. America's Justice Department created a team to fight ransomware. Allies in the Five Eyes (an intelligence alliance of English-speaking countries) - the US, Australia, UK, Canada and New Zealand - are sharing information with each other in this area. But there is still much work to be done. According to data published by the Times as part of the Freedom of Information Act, only one in 200 police officers in the U.K. handles fraud cases, despite the impressive size of such crimes.
The capacity of criminals continues to grow. In the past six months, the value of all bitcoins in circulation has risen to more than $1 trillion. This surge in liquidity makes it even easier to hide crimes. Finally, as Woodward puts it, "Why go into a bank with a gun to steal £30,000 when, if you have money to invest, you can go into the darknet and start an extortion campaign and make millions?"