Cryptocurrency, once a niche interest, has grown into a global financial tool. With its rise, the misuse of cryptocurrency has surged as well. As fraudsters increasingly exploit the decentralized nature of digital currencies, local law enforcement agencies are faced with the task of adapting to the complexities of cryptocurrency-related scams. These scams often range from investment fraud and ransomware attacks to phishing schemes and Ponzi schemes. Local agencies, though historically unprepared for digital financial crimes, now find themselves on the front lines of the battle against cryptocurrency fraud. While the challenge is steep, law enforcement can play a vital role in combating these scams through education, collaboration, and technological adaptation.


The Growing Threat of Cryptocurrency Scams

Cryptocurrency scams are evolving at an alarming rate. According to the Federal Trade Commission (FTC), cryptocurrency-related fraud losses in the U.S. reached over $1 billion in 2022 alone, with millions of Americans falling victim to scams. These scams often capitalize on the anonymity and unregulated nature of cryptocurrency transactions, making it difficult for traditional fraud prevention methods to keep pace. A common tactic involves fraudsters creating fake investment opportunities or impersonating legitimate cryptocurrency exchanges to deceive victims into transferring funds to scammers’ digital wallets. Once the funds are transferred, they are often quickly converted into other currencies or withdrawn through complex money-laundering operations, making recovery nearly impossible.
For local law enforcement, the challenge begins with understanding how cryptocurrencies work. Digital currencies like Bitcoin and Ethereum operate on blockchain technology, which enables peer-to-peer transactions without the need for a centralized authority. The decentralized and pseudonymous nature of these transactions poses significant hurdles for investigators attempting to track and trace illicit funds. Additionally, many cryptocurrency transactions cross international borders, adding layers of jurisdictional complications that make investigations time-consuming and costly.


The Role of Local Law Enforcement

Despite these challenges, local law enforcement has a critical role to play in combating cryptocurrency scams. Local police departments are often the first point of contact for victims. Officers need to be able to identify and preserve evidence in crypto-related crimes, including collecting information about wallets, transaction hashes, and other blockchain identifiers that can be used in investigations.
Education is key to empowering local officers to take on these cases. Programs like the Cryptocurrency for the Patrol Officer Course, offered by Agent Thomas R. Alber, are essential. This course provides a foundational understanding of cryptocurrency, teaching officers how to identify key indicators of scams, secure perishable digital evidence, and work with specialized units or external agencies like the FBI or U.S. Secret Service when necessary. As scams become more sophisticated, these training opportunities help patrol officers gather crucial information in the early stages of a scam report, increasing the chances of a successful investigation.


Collaborative Efforts with Financial Institutions

Law enforcement’s collaboration with the banking industry is another critical aspect of combating crypto scams. Many fraudsters use cryptocurrency as part of a larger money laundering scheme that also involves traditional banking institutions. Building strong partnerships with banks can help local police trace suspicious transactions, gather intel on fraudulent accounts, and flag illicit financial activity. Initiatives like Operation Shamrock, an international partnership of law enforcement and financial institutions led by Erin West of the Santa Clara County DA’s Office, demonstrate the power of such collaborations. By sharing intelligence and investigative techniques, these partnerships increase the ability of local police to combat international crypto scams.
Financial institutions often possess detailed knowledge of anti-money laundering protocols, transaction monitoring, and fraud detection systems that are invaluable to law enforcement investigations. Educating bank employees to recognize cryptocurrency-related red flags—such as elderly individuals withdrawing large sums to send to scammers—allows for timely intervention before funds disappear into the ether of the blockchain. By fostering cooperation and establishing clear communication channels, local law enforcement can tap into these resources to tackle fraud cases more efficiently.


Leveraging Technology and Specialized Tools

Local police departments must also embrace the technological tools that are essential for combating cryptocurrency crimes. Tools like Chainalysis, TRM Labs, and Merkle Science help trace cryptocurrency transactions across the blockchain, identifying links between illicit activity and digital wallets. These tools provide detailed insights into the flow of funds and can often pinpoint the location or identity of scammers.


Chainalysis has been a pioneering force in blockchain analysis, offering comprehensive tools for investigating cryptocurrency crime and tracking illicit funds. Its tools are widely used by federal agencies and are now being adopted by local departments to trace suspicious crypto transactions and help connect wallets to real-world identities.
TRM Labs provides real-time monitoring and risk management solutions, giving law enforcement agencies the ability to track suspicious crypto movements across different exchanges and wallets. It helps detect fraudulent activities before funds are laundered or withdrawn.
Merkle Science specializes in predictive blockchain analytics, enabling law enforcement to detect and prevent illegal activities. This tool is crucial in monitoring patterns of suspicious behavior across blockchain transactions, enhancing the chances of stopping fraudulent transactions.
While these tools are highly effective, they are often out of reach for small and mid-sized police departments due to the high cost of user licensing fees. Smaller agencies frequently face budget constraints, limiting their access to the cutting-edge technology required for crypto investigations. As a result, they may struggle to independently track and trace cryptocurrency transactions, making them reliant on federal agencies or external partnerships for assistance.


For agencies that are part of the FBI’s Regional Information Sharing Systems (RISS) Network—which includes regional organizations like MOCIC, ROCIC, RMIN, WSIN, NESPIN, and MAGLOCLEN—additional resources are available. Member law enforcement agencies dealing with crypto-related cases can request assistance from these organizations in tracing illicit cryptocurrency transactions and issuing freeze letters. This allows law enforcement to temporarily halt suspicious transfers, increasing the chances of recovering stolen funds before they disappear into the blockchain network.
While these tools are invaluable, many local law enforcement agencies lack the budget to afford them. Grant programs and partnerships with federal agencies can help bridge this gap. Federal agencies like the Department of Justice and the U.S. Secret Service often provide grants or resources to assist local agencies in obtaining the tools necessary to fight financial crimes. Additionally, cross-agency task forces can give local departments access to resources and expertise that would otherwise be unavailable.


Public Awareness Campaigns

In addition to internal strategies, local law enforcement should also play a role in educating the public about the dangers of cryptocurrency scams. Public awareness campaigns can inform citizens about the common tactics scammers use, such as phishing emails, fraudulent investment platforms, or imposter schemes where fraudsters pose as government officials or tech support. Educating the public on how to recognize and report these scams can prevent them from falling victim in the first place.

Law enforcement agencies can collaborate with local governments, schools, and financial institutions to deliver workshops, webinars, and outreach programs. Social media campaigns highlighting scam prevention tips, common red flags, and the risks of cryptocurrency investments can reach a broad audience. By promoting transparency and offering a clear path for citizens to report suspicious activity, local law enforcement can stay ahead of potential scams.


While cryptocurrency scams present significant challenges, local law enforcement can rise to the occasion through education, collaboration, and the adoption of new technologies. Officers on the ground are essential in responding to victims, gathering initial evidence, and preventing further financial losses. With specialized training, partnerships with financial institutions, access to RISS Network resources, and the use of blockchain analysis tools like Chainalysis, TRM Labs, and Merkle Science, local agencies can effectively combat this modern-day threat. Ultimately, staying ahead of cryptocurrency scams requires both a proactive approach and a commitment to ongoing education and collaboration between law enforcement, financial institutions, and the public.
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References
1. Federal Trade Commission. “Consumer Sentinel Network Data Book 2022.”
2. Chainalysis, Inc. “The 2023 Crypto Crime Report.”
3. West, Erin. “Operation Shamrock: A Collaborative Approach to Combating Cryptocurrency Fraud.”
4. Alber, Thomas R. “Cryptocurrency for the Patrol Officer Course.” USCryptoCop.com.
5. U.S. Department of Justice. “Grant Programs to Combat Financial Crimes.”
6. TRM Labs. “Crypto Crime and Risk Management Solutions.”
7. Merkle Science. “Predictive Blockchain Monitoring and Analytics.”
8. FBI’s Regional Information Sharing Systems (RISS) Network.

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