The State of Compliance

A month-by-month
roundup of last
year’s top FinCrime
stories and trends

2022 YEAR IN REVIEW

 Dear Friends,

Welcome to Crimes & Compliance: 2022; a round-up of last year’s most dramatic developments in the world of FinCrime and
compliance. So much happened last year that I thought it would be helpful to provide my industry friends with a high-level review
of 2022’s fraud and compliance milestones, with a keen focus on DeFi, fiat and cryptocurrency.

Who am I? In addition to serving as the Alacer Group’s CEO, in the last year I have also published 48 articles about money
laundering and compliance in relation to the cryptocurrency market, NFTs, DeFi (decentralized finance) and fiat markets in
publications like CryptoStars, CoinMonks, InsiderFinanceWire, Personality NFT and more.

I am passionate about this topic. It is my life’s work at this point. I am also backed by an award-winning team of employees and
consultants who, armed with our Velocity compliance technology tools, spend their days defeating the financial fraudsters and
helping our clients stay compliant with the Anti-Money Laundering Act (AMLA) and other new regulatory requirements. This
roundup could not exist without their efforts. I hope you enjoy reading 2022’s top crime and compliance events as they are
revealed below, month by month, starting with January of 2021 and the emergence of the now infamous Rug Pull crime.

Sincerely,

Richard Paxton, CEO and co-founder of the Alacer Group

 The projected total cost of financial crime compliance for U.S. financial firms in 2022 was $45.9 billion (USD)!

Top Financial Crimes Impacting Cost of Financial Crime Compliance in the Last 12 Months
(% Ranked Among Top 3)

CANADA 2021 U.S. 2021

41%
Financial crime involving digital payments 51% 68% Financial crime involving digital payments 30% 68%
For Mid/Large U.S. Banks

Trade-based money laundering schemes 45% 22% Trade-based money laundering schemes 32% 22%

Use money mule accounts to launder the Use money mule accounts to launder the 58%
42% 46% 30% 46%
proceeds of crime proceeds of crime For Mid/Large U.S. Banks

Financial crime involving cryptocurrency 34% 52% Financial crime involving cryptocurrency 34% 52%

Criminal use of emerging technologies 30% 38% Criminal use of emerging technologies 21% 38%

Proceeds of trafficking (e.g. dug, human, Proceeds of trafficking (e.g. dug, human,
18% 16% 33% 16%
wildlife) wildlife)
Use third party advisers to lend legitimacy to Use third party advisers to lend legitimacy to 41%
17% 16% 27% 16%
illegal activities illegal activities For Mid/Large U.S. Banks

Crime involving payments associated with Crime involving payments associated with 42%
9% 68% 28% 68%
ransomware attacks ransomware attacks For Mid/Large U.S. Banks

Abuse of domestic and offshore structures for Abuse of domestic and offshore structures for 46%
8% 11% 33% 11%
laundering proceeds of crime laundering proceeds of crime For Mid/Large U.S. Banks

Supply chain disruptions 7% 30% Supply chain disruptions 22% 30%

Significantly/directionally higher than same response in other segment

Source: Lexis Nexis 2022 True Cost of Financial Crime Compliance Study
Significant or directional increase from 2021

Is your company’s compliance team ready to face 2023’s crime wave?

January’s Top Story Bitcoin Price on January 1, 2022: $47,738.59

The Rug Pull

Welcome to what could be the crime of 2022, the rug pull. It was definitely the most-talked about
type of financial fraud scheme in January, especially after a late December report announced that
$2.8 billion was stolen through rug pulls in 2021. You might be asking, what is a rug pull?

A rug pull is a scheme where a cryptocurrency or NFT creator opens an auction for a new coin or
NFT, and then steals the auction’s proceeds while the auction is still open. How can this happen?
During an NFT or a token sale what’s called a liquidity pool remains unlocked for the creators on the
exchange so long as the token sale is in process. While the auction is open the creators simply take
the funds from the unlocked pool and flee.

It is a simple snatch and grab, but also astonishing how many rug pulls have been pulled
successfully (487), compared to how many have been busted, which is a small number. In fact, the
FBI made its very first rug pull arrest in March of 2022.

Click on the tablet to your right for a more detailed review of how a rug pull works, along with some
insight into how it could be stopped, and some of the more notorious cases.
February’s Top Story Bitcoin Price on February 1, 2022: $38,699.50

The Crocodiles of Wall Street

Why is this the top story of February? In some circles, it is the story of the year. First of all, for the
first time in history two people, Ilya Lichtenstein and Heather Morgan, stole and attempted to
launder more money in one crime than some cartels make in a decade The Justice Department
called their theft a record amount! If that doesn’t prove we are living in a golden age of money
laundering, thanks to crypto, then I’m not sure what can. FYI, An estimated $33 billion (USD) worth of
illicit and dirty cryptocurrency has been laundered since 2017!

Liechtenstein and Morgan were not amateurs. Among other sophisticated laundering tactics, they
also: deposited the stolen funds into accounts at a variety of virtual currency exchanges and Darknet
markets and then withdrew the funds, which obfuscates the trail of the transaction history by
breaking up the fund flow; and they converted Bitcoin to other forms of virtual currency, including
an anonymity-enhanced virtual currency (AEC), in a practice known as “chain hopping”.

Had Morgan maintained a lower profile - she advertised herself online as the Crocodile of Wall St. -
they may have gotten away with their FinCrimes.
For more details on this story, please click on the tablet to your right.
March’s Top Story Bitcoin Price on March 1, 2022: $44,412.49

Is Crypto a Pump & Dump?

There have been laws in place since the 1930’s prohibiting pump and dump schemes and the activities
associated with them, such as falsely promoting a stock’s value with misleading advertising. There are
a number of ways one can run afoul of these laws, which include: Section 17(A) of the Securities Act of
1933; Rule 10b-5 of the Securities Exchange Act of 1934; Statute 18 U.S.

Throughout 2022, the cryptocurrency market and NFT creators blatantly promoted new and existing
coins and NFT’s - see the now infamous 2022 Is Crypto a Pump & Dump? Code Section 1343; and
Statute 18 U.S. Code Section 1341. Super/Cryptobowl - and hired celebrities and famous athletes as
promoters. As a result, and according to Fortune Magazine, the SEC is now increasingly cracking down
on social media influencers, athletes and celebrities that are promoting financial products and
cryptocurrency.

In fact, before the Cryptobowl scandal, the SEC fined Kim Kardashian $1 million and barred her from
promoting crypto for three years. Apparently, she recommended a cryptocurrency coin to her millions
of Instagram followers without disclosing to them that she was paid to do so. That is just wrong.

To learn more about why cryptocurrency should be investigated as a pump and dump scheme, please
click on the tablet to your right.
April’s Top Story Bitcoin Price on April 1, 2022: $46,284.63

White House Issues EO

Targeting Crypto!
The White House issued an executive order in March that stated the federal government will spend the
rest of 2022 studying how to address the unregulated cryptocurrency market and the immediate
impact of that order was felt in April. For the full analysis on what this order means for the
cryptocurrency market, click on the tablet to your right.

Why will the US government centralize crypto? There are zero AML regulations in place, making it too
easy to launder illicit funds, it is operating as a classic pump and dump, and at the most basic level it
does not pass the Howey Test, which is technically a law resulting from the Supreme Court case SEC v.
W.J. Howey Co., 328 U.S. 293 (1946).

In order for an investment to qualify as a security, the Howey Test requires the following traits:

— An investment of money
— In a common enterprise
— With a reasonable expectation of profits to be derived from the efforts of others Cryptocurrency
carries all three of those traits. Regulation is definitely coming.
May’s Top Story Bitcoin Price on May 1, 2022: $38,469.09

Regulations, Crypto Mining &

Compliance?
Is Bitcoin Mining that bad for the environment? According to an MIT-based study published in April, but
made public by the New York Times in May, “crypto mining in upstate New York increased annual electric
bills by about $165 million for small businesses and $79 million for individuals during the years 2016–
2018.”

The study’s science and the data supporting MIT’s hypothesis that crypto mining and trading is both
harmful to human health and the environment, and costly, petrol industries! Is Bitcoin Mining that bad for
the environment? According to an MIT-based study published in April, but made public by the New York
Times in May, “crypto mining in upstate New York increased annual electric bills by about $165 million for
small businesses and $79 million for individuals during the years 2016–2018.” is hard to refute. The
cryptocurrency industry is trying to show a good face, which was the impetus for the ‘Times’ story, Bitcoin
Miners Want to Recast Themselves as Eco-Friendly.

More evidence of crypto mining’s disruption to human health and the environment was added as fuel to
the fire in September of 2022, when another dramatic study related to crypto mining and the environment
was published, this time in the well-respected Scientific Reports journal. According to the study, the mining
of a single bitcoin causes the same amount of environmental costs as the beef and

For more about crypto mining’s environmental impacts, click on the tablet to your right.
June’s Top Story Bitcoin Price on June 1, 2022: $29,799.08

El Salvador Makes Bad Bitcoin

Bet?

El Salvador made history when it became the first country in the world to make June’s Top Story Price of
Bitcoin on June 1, 2022: $29,799.08 El Salvador Makes Bad Bitcoin Bet? Bitcoin legal tender on June 9. On
June 10, rather than celebrate, the people of El Salvador hit the streets in protest. Why? Only one half of
the Salvadoran population has any internet access and those that do have a spotty connection. With an
average income of $4,000 per year, how would an average citizen in El Salvador afford a smartphone,
much less invest in Bitcoin?

In the fall of 2002 western media pounced on Bukele with some scathing headlines and investigative
articles, which included charts like the one below that tell the whole story.

Learn more about El Salvador’s risky crypto vision and our analysis of it all by clicking on the tablet.
July’s Top Story Bitcoin Price on July 1, 2022: $19,269.37

AML Regs Coming to Art

Market?

This is July’s top story because of the power of the warning it sent to the antiquities world. The
passage of the Enablers Act, a bill that was introduced in October of 2021 and passed the House
vote in July, would have required extensive compliance reporting from a population of middlemen
and women in the world of fine art and antiquities, who by accident or by trade serve as
professional money launderers. This is a population not used to any compliance and one that likely
breathed a sigh of relief when the bill was rejected by the Senate on December 2, 2022.

In addition to art, the Enablers Act would have impacted the NFT market, which makes the power of
this legislation even more intense. Why? Because NFTs are considered antiquities by the US
government, just like artwork. The establishment of AML regulations for the antiquity's world is long
overdue, and is likely coming in some form in 2023, but not without a fight, as the December vote
reveals.

For more information about the Enablers Act and its ramifications, click on the tablet to your right.
August’s Top Story Bitcoin Price on August 1, 2022: $23,314.20

Forbes’ Report: 1/2 of All

Bitcoin Trades Are Fake!

The top story for August is somehow believable, but also incredible. An ongoing study of the
cryptocurrency market released by Forbes magazine on August 26 stated that its analysis of 157
different cryptocurrency exchanges revealed that more than half, 51% to be exact, of the daily trading
volume being reported about Bitcoin is fake! Doesn’t that add credibility to the idea that perhaps crypto
is a large pump and dump scheme?

We think the data in the Forbes report speaks for itself. Yes, there are variables in play that affect the
51% figure, but not enough to discredit the study. With news like this emerging, the crypto industry is
headed for regulation sooner than later.

Click the tablet on your right for our full analysis of the Forbes study.
September’s Top Story Bitcoin Price on September 1, 2022: $20,127.14

Meet the AML Variable; the

Hawala

This is the top story for September because the Hawala is a financial exchange system that dates back
to the 2nd century BC and established the original Silk Road, which was credited to the Han Dynasty.
Almost $300 billion (USD) passes through the Halawa network each year, making it the only viable
finance channel for millions of people. Did you know that 24% of the world’s population, roughly 1.4
billion people, have no access to banking?

The old Silk Road and ancient Hawala, however, serve as very effective money laundering channels for
crooks who deal in cash. In fact, the Financial Action Task Force is now taking a very serious look at the
Hawala and its role in financial fraud and money laundering. So is the law, as is evidenced by the recent
arrest of an Irish cartel caught laundering over $200 million euros over the course of 12 months, a story
you can read by clicking the tablet to your right.
October’s Top Story Bitcoin Price on October 1, 2022: $20,127.14

Chinese Gangster Enables

Cartels!

An investigation published by ProPublica in October uncovered a frightening trend. According to the

investigation, a Chinese gangster named Xizhi Li pioneered a new method of money laundering that has
revolutionized the drug underworld and fortified cartels in Latin America and Mexico. Was China
enabling Li?

According to John Cassara, a former U.S. Treasury Department investigator, over $3.8 trillion (USD) has
left China since 2006, which makes the country the world’s top “exporter of hot money.”

For the full details on this disturbing and still evolving case, click on the tablet on the right side of your
screen
November’s Top Story Bitcoin Price on November 1, 2022: $20,485.27

FTX Collapse: The End of The

Innocence?

The FTX exchange collapse shook the financial world and has to be the top story of the 12 featured in
this ebook. It immediately impacted the value of the entire crypto market, but it also exposed
cryptocurrency as a money launderer’s paradise and a pump & dump scheme. The case also involves
athletes and celebrities who knowingly pumped-up certain coins by endorsing them in TV ads.

Take a look at the FTX valuation arc below created by Bloomberg. An FTX valuation of $76.2 billion as of
January of 2022 is valued at $1 less than a year later? It doesn’t take a seasoned SEC investigator to
smell something fishy.

More than that, the FTX collapse has brought into question crypto’s very existence, a topic you can dive
deeper into by clicking on the tablet to your right.
December’s Top Story Bitcoin Price on December 1, 2022: $16,967.13

Will Crypto Survive in 2023?

Former FTX CEO Sam Bankman-Fried (SBF), was arrested in the Bahamas on 12/12/22 per a request
from US authorities, on charges of suspected fraud and money laundering. To make things worse,
according to Reuters, the SEC reported that it too has authorized bringing charges against SBF, for
violating securities laws.

Worse still, evidence gathered by Reuters suggests a coming criminal collapse of the world’s largest
cryptocurrency exchange, Binance, which is accused of processing over $10 billion in illegal payments in
2022, and “evading” regulators.

The DOJ is currently mulling charges against Binance and some of its top executives, including founder
Changpeng Zhao. If they do press charges, the crypto industry could implode. If the DOJ does not, it will
only be in order to avoid massive financial disaster, but to what end? Won’t the investors flee by the
millions anyway? If not, doesn't that suddenly turn 2023 into the golden era of money laundering
tracking?

Click on the tablet for potential answers.

 At The Alacer Group we help organizations get and stay in compliance with our proven FinCrime

Solutions Suite built on an advanced AI and Machine Learning platform. Our team of highly experienced

IT professionals and consultants work closely with organizations to combat financial crime. They also

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everything in between, we have you covered. Gain Velocity in the fight against FinCrime by clicking on the

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