Explaining prosecution outcomes for cryptocurrency-based financial crimes
| DOI | https://doi.org/10.1108/JMLC-10-2021-0119 |
| Published date | 04 January 2022 |
| Date | 04 January 2022 |
| Pages | 172-188 |
| Subject Matter | Accounting & finance,Financial risk/company failure,Financial compliance/regulation,Financial crime |
| Author | Arianna Trozze,Toby Davies,Bennett Kleinberg |
Explaining prosecution outcomes
for cryptocurrency-based
financial crimes
Arianna Trozze
Department of Computer Science, UCL, London, UK;
Department of Security and Crime Science, UCL, London, UK and
Dawes Centre for Future Crime, UCL, London, UK
Toby Davies
Department of Security and Crime Science, UCL, London, UK, and
Bennett Kleinberg
Department of Methodology and Statistics, Tilburg University, Tilburg,
The Netherlands; Department ofSecurity and Crime Science, UCL,London, UK and
Dawes Centre forFuture Crime, UCL, London, UK
Abstract
Purpose –Cryptocurrencies have been used to commit various offences, but enforcement efforts remain
underdeveloped relative to the value of these crimes. This paper aims to examine factors associated with
outcomesof US-basedcryptocurrency financial crime prosecutions.
Design/methodology/approach –The authors studied the 37 resolved cryptocurrency-based financial
crime cases in the USA to date, exploringthe impact of offence, defendant and evidence characteristics on the
mode of disposition and penalties. The authors used bivariate analyses and logistic regression models to
determinerelationships among these variables.
Findings –The presence of individual defendantsonly (rather than a corporate defendant or combination
thereof) and the use of only a cryptocurrencyother than Bitcoin in committing a crime each made a case less
likely to be resolvedby dismissal, trial or summary or default judgement.
Originality/value –This paper is thefirst to examine variables contributing to financial crime prosecution
outcomes and has implicationsfor prosecutorial decision-making, resource allocation and theprevention and
detectionof financial offences involving cryptocurrencies.
Keywords Prosecution, Financial crime, Bitcoin, Cryptocurrencies, Cryptoassets, Virtual assets
Paper type Research paper
1. Introduction
The rise in popularity of cryptocurrenciessince Bitcoin’s release in 2009 has transformed the
perpetration of financial crime by facilitating lower-cost, pseudo-anonymous [1] and
irrevocable money movement with low barriers to entry (Brenig et al.,2015;Durrant and
Natarajan, 2019;Kethineni and Cao, 2019). To date, cryptocurrencies have been used to
commit offences including moneylaundering; hacks, theft and malware; initial coin offering
scams and Ponzi schemes; sanctionsviolations; tax evasion; market manipulation; and other
This work was funded by the UK EPSRC grant EP/S022503/1 that supports the Centre for Doctoral
Training in Cybersecurity at UCL.
JMLC
26,1
172
Journalof Money Laundering
Control
Vol.26 No. 1, 2023
pp. 172-188
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-10-2021-0119
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1368-5201.htm
fraud. Enforcement effortshave begun –primarily in the USA –but remain in their infancy,
particularly relative to the estimated value of the crimes, which CipherTrace estimated as
$4.4bn from the beginning through the third quarter of 2019 (CipherTrace, 2019). As of
February 2019, there had onlybeen 51 cases involving cryptocurrency brought in US courts
or contemporaneouslybeing publicly investigated (Kethineni and Cao, 2019).
Afirst step to improving cryptocurrency-based financial crime prosecution efforts
is determining which factors are associated with prosecut ion outcomes of the same, i.e. are
there any characteristics of cases that make successful prosecutionmore likely? As these have
so far primarily occurred in the USA, we study the US population of cases. Both legal and
extra-legal factors play a role in successful prosecution of crimes (Danziger et al., 2011)and
offence, defendant and evidentiary characteristics have been shown to influence prosecution
outcomes in US cases (Cramer, 1999;Engen and Gainey, 2000;Reitler et al., 2013;Ulmer and
Johnson, 2004). Using publicly available case documents, bivariate analyses and logistic
regressions, this paper explores several variables in the aforementioned categories –such as
the number of charges, mode of disposition and type of defendants –present in cryptocurrency-
based financial crime cases to determine their power in explaining case outcomes. This study is
the first to look at factors explaining prosecution outcomes in financial crime cases, let alone
cryptocurrency-based financial crime cases. We seek to understand, in broad terms, why cases
are resolved how they are, to improve future prosecutions and resource allocation.
2. Related work
There is sparse literature regarding factors associated with prosecution outcomes for
financial crime offences. We therefore look to literature on factors affecting prosecution
outcomes in other areas of law.
Prosecution outcomes can be categorisedin various ways, but generally refer to whether
charges were fully prosecutedor dismissed, whether a felony/misdemeanour was convicted,
and the defendant’s sentence (Kingsnorth et al., 2001). We can consider the mode of
disposition with further granularity, for example whether a case was resolved by guilty
plea, whether it was dismissed or diverted, or whether the defendant was found guilty or
innocent at trial (Henningand Feder, 2005).
Most of the empirical research on prosecution outcomes examines criminal cases
generally (Engen and Gainey,2000;Reitler et al., 2013;Ulmer and Johnson, 2004). One study
explores felony drug prosecutiondecisions (Franklin, 2010) and others concern domestic and
sexual violence cases(Cramer, 1999;Henning and Feder, 2005).
These studies’dependent variables include the mode of disposition of cases (Franklin,
2010;Henning and Feder, 2005), sentencingdecisions (Engen and Gainey, 2000;Reitler et al.,
2013;Ulmer and Johnson, 2004) and verdicts (Cramer, 1999). Independent variables
generally fall under the following categories: defendant characteristics and case/offence
characteristics. Defendant characteristics include defendant age,race, gender, income level,
employment status, relationship to the victim and prior criminal history. Case/legal
characteristics include arrest characteristics, the nature of the offence, whether there was
any injury to the victim, offence seriousness level/sentencing guidelines, the number of
charges and evidentiary characteristics (Cramer, 1999;Engen and Gainey, 2000;Franklin,
2010;Henning and Feder, 2005;Reitler et al.,2013;Ulmer and Johnson, 2004). Two studies
(Cramer, 1999;Ulmer and Johnson,2004) also include independent variables relating to more
procedural factors, such as the time between the event and court action, who reported the
crime, the judge, availablejail space, trial rate and court size and caseload.
Studies find that legal characteristics play a role in case outcomes (Engen and Gainey,
2000;Reitler et al., 2013). A defendant’s criminal history is also significant (Cramer, 1999;
Explaining
prosecution
outcomes
173
To continue reading
Request your trial