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Accountancy- Rics - Finance Psychology ISSN 2397-2769 THE JOURNAL FOR INSTRUCTING PROFESSIONALS & EXPERT WITNESSES = FORENSIC SCIENCE ACCOUNTANCY- RICS - FINANCE PSYCHOLOGY Vol 1 Issue 26 - Winter 2018/19 - £5.00 €6.00 Contents Some of the highlights of this issue Events and Training page 5 Book Review Clinical Practice & the Law - A legal primer for clinicians. page 7 My First Christmas in London page 8 by Dr Bashir Qureshi The Treasury Report on Crypto-assets page 15 by Andrew Henderson, James Burnie, Zia Ullah & David Cook at Eversheds-Sutherland . Crypto Assets, Financial Crime & Forensic Accounting page 18 by Paul Doxey Hidden Assets in Confiscation Proceedings page 21 by Rob Miller, director and co-founder of Inquesta. Money Laundering by John Binns page 23 Digital Forensics and Selecting a Digital Forensics Expert Witness page 26 by Jason Bergerson and Alistair Ewing Forensics Europe Expo preview page 32 UK Forensic Science Strategy, GSOH, Seeks Joined-up Thinking for LTR page 34 by Jo Millington Atrociously Bad Interest Rate Decisions page 37 by Mr Peter Crowley Noise Nuisance and the Expert Witness page 43 by Dick Bowdler, Noise Consultant Fire Investigation - ‘Completing the Jigsaw’ page 47 by James Holder Psychological Injury, Cyber Crime and Data Breach Damages page 53 by Hugh Koch Dealing with Service Users Who Bite, Scratch or Spit Foreseeable Risk page 56 by Joanne Caffrey, Expert Witness & Specialist Training Provider Safer Custody Results from the Times & Bond Solon Annual Expert Witness Survey 2018 page 59 by Mark Solon, Chairman of Wilmington Legal & founder of Bond Solon In a Foreign Land - by Mr. Bernard J B K Page 61 Darnley V Croydon Health Services NHS Trust page 68 Mr Mike Paynter - Emergency Nursing Expert Witness – Apex Health Associates Ethics and the Expert Witness page 72 by Martin Burns RICS, Head of ADR Research and Development Domo Arbitrato, Mr Roboto: Where and Under what Rules page 77 Will we be Arbitrating, Commercial Arbitration Claims in 2028 By Dorothy Murray (London) and James McKenzie (Hong Kong)King & Wood Malleson s Preparing For a Hot Tub - by Dr Chris Danbury page 82 EXPERT WITNESS JOURNAL 3 WINTER 2019 Crypto Assets, Financial Crime & Forensic Accounting In this article I explain how cryptocurrencies are used to launder illicit funds and how this affects the asset tracing work of forensic accountants. Forensic accountants use their expertise in finance, market goods, mainly drugs but also other illegal accounting and transaction processing systems to in- items such as stolen identity documents. According vestigate fraud and other financial wrongdoing. to the US authorities, 1 the Silk Road site generated Their work includes assisting clients on financial approximately $1.2 billion in sales revenue and $80 crime risks and controls, detection, investigation and million in commissions – all of which was in bitcoin. litigation support, as well as asset recovery. Two Ulbricht was eventually caught and convicted, but aspects of this work are money laundering and asset only through old fashioned forensic investigation and tracing. not by breaking bitcoin’s security technology. How- ever, his conviction was assured by another key fea- Money laundering is the transformation of the ture of bitcoin, its tamper-resistant method of proceeds of crime from their original form (such as record-keeping – more on that later. cash) into new assets and locations to disguise their origin and make them appear legitimate. Typically, Russian interference in the 2016 US presidential the assets may have been moved through a complex election was alleged by the US authorities in July chain of entities, such as bank accounts, companies, 2018. The investigation by Special Counsel Robert trusts and special purpose vehicles. Often these will Mueller led to the indictment of 12 Russian intelli- span multiple jurisdictions. All this is done to ensure gence officers for “hacking into the computers of US the trail is as hard to follow as possible. What began persons and entities involved in the 2016 US presi- as cash received through a UK Ponzi scheme might dential election” and conspiring “to launder the end up in mega yachts in Monaco, property in Spain equivalent of more than $95,000 through a web of and blue-chip investments in the London Stock Ex- transactions structured to capitalize on the perceived change. The money could be laundered via compa- anonymity of cryptocurrencies such as bitcoin.” 2 It is nies in Switzerland, bank accounts in Guernsey, trusts alleged that bitcoins were used by the defendants to in the Cayman Islands and law firm client accounts in evade scrutiny when purchasing servers, registering Gibraltar. domain names and making other payments as part of their hacking activity. Asset tracing is the process of carefully uncovering the trail of an asset from origin to ultimate destina- So what are cryptocurrencies, exactly? tion, documenting each step along the way, in a Cryptocurrencies, such as bitcoin, are “any publicly forensically sound manner that can stand up to court available electronic medium of exchange that features scrutiny. a distributed ledger and a decentralised system for 3 exchanging value.” They are an exciting innovation Cryptocurrencies such as bitcoin provide new that seem to offer certainty, security and transparency opportunities for money launderers, through the without government regulation or any central au- partial anonymity they can provide and the lack of thority being involved. They are lauded by many as centralised supervision. Both these attributes are seen a true free-market innovation. as key attractions by genuine and dishonest users alike. Two examples are the notorious case of Ross Cryptocurrencies are actually a combination of four Ulbricht, the founder of Silk Road, which was the first technologies: dedicated black market on the dark web; and the 1. Distributed ledgers: each participant can have a more recent alleged activities of Russian intelligence copy of the whole ledger (transaction record), which operatives accused of seeking to interfere with the US for bitcoin and many other cryptocurrency systems presidential election in 2016. is structured in a “blockchain”. Silk Road was created by Ross Ulbricht in 2011 as an 2. Decentralised control: participants can deal directly online marketplace free from government oversight with each other, not through a central authority or controlling entity like a bank. and interference. It provided anonymity through the Tor system, which helps internet users conceal their 3. Use of cryptography: to protect and authenticate location and communications. Silk Road used bitcoin transactions, balances and participants. as the currency for all transactions. Bitcoins are held in online “wallets” whose ownership can be kept 4. Automation: the ability to automate transactions anonymous. Silk Road quickly became the main programmatically, such as in smart contracts or by electronic bazaar for the buying and selling of black triggering the payment of interest on a bond once a specified event occurs. EXPERT WITNESS JOURNAL WINTER 2019 Cryptocurrencies are not regarded as true currency crimes into the cryptocurrency in the first place. This – they are not official money, which is called “fiat highlights two key areas of vulnerability from the currency”. They are not legal tender and currently criminals’ perspective: the points of entry and exit. are not widely accepted across society. However, they Criminals who make their money in the real econ- can offer the following benefits: omy, for example through investment fraud, will • Security need to convert their proceeds into cryptocurrencies, • Speed which means finding a party willing to accept fiat cur- • Low transaction costs, avoiding banks and rency in exchange. In practice - for transactions of intermediaries any size - the payment of the real currency will need • Convenience to pass through a financial institution such as a bank. • Relative anonymity If the financial institution has strong anti-money laun- • Decentralised dealings without any central dering controls then it will consider whether the oversight or monitoring source of the funds and the nature of the transaction One key aspect of a classic cryptocurrency such as seems suspicious and, if so, report it to the authorities. bitcoin is the distributed blockchain ledger technol- Similar considerations apply when cryptocurrency is ogy. What this means is that is every single transac- converted back into fiat currency. This is one area on tion, since day one, by every party in the which forensic accountants can focus when trying to cryptocurrency system, is recorded in a ledger, which trace assets: regulated financial institutions are is a chain or sequence of transaction “blocks” called a required to follow stringent “know your customer” “blockchain”. The net result of the history of all the rules, and their records can therefore be a useful transactions affecting a user’s wallet determines the source of information about the identity of the closing balance on that wallet. Every user can have a parties. copy of the whole ledger, and can therefore see all the transactions, though the identity of wallet holders One weakness from the regulators’ point of view has may be unknown. This sharing of information about been poor regulation of cryptocurrency exchanges – transactions across the whole system makes it very companies that buy and sell cryptocurrencies, hard to falsify the records. Because everyone else has providing the entry and exit points to customers. a full copy of the ledger, altering one’s own copy will These have typically been exempt from anti-money have no effect: each new block of transactions is only laundering regulation. However, with the rise cryp- finalised and accepted – and then shared with all the tocurrencies and the associated money laundering users – once it has been properly validated by a spe- risk this is changing. The EU’s 5th Anti-Money Laun- cial class of users called “miners” using complex cryp- dering Directive, which came into force in July 2018, tographic techniques.
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