Bitcoin Account in Nancy Guthrie Kidnapping Case Could Be Traced: Analyst

Now, around noontime today, the Pima County Sheriff's Office posted again that they're not scheduling any press briefings or interviews unless a significant development occurs. And for further analysis of the Nancy Guthrie investigation, we're joined by attorney Gerard Felitti, senior counsel at the Lawfare Project. Good afternoon to you, Gerard. So I want to focus on the Bitcoin aspect of this. You've been involved in numerous cases that involve tracing the flow of money, and TMZ, as we reported, found $152 worth of Bitcoin was deposited last night into the account associated with the first ransom note. So what could some of the reasons be behind this transfer? Well, TMZ has access to something that most people do not, and it's that actual Bitcoin account information. Anyone can look up a blockchain transaction. Anyone can look at a Bitcoin transaction to see if there is money in the account and how it is flowing. That is a public record. That's how blockchain works. But why there was money in there? Presumably it might be an attempt by law enforcement to see who accesses that information, to see if there's anyone looking and accessing that account and looking to transfer money from it in order to track their identity and their location. OK, so just for our viewers who are maybe not aware, why use Bitcoin? Well, Bitcoin is meant to be more deregulated than current exchanges. It's peer to peer. It's something that there is a public transaction log called a blockchain that people can access that confirms these transactions. That's what's used to validate a transfer of Bitcoin from one person, from one account to another. It's not the traditional method that uses banks or uses other account methods. It is something that is meant to be accessible to everyone anywhere in the world. So that makes it very appealing to some people who like more anonymity and privacy, but it also makes it very useful for the criminal element who think that they can use this and other untraceable methods in order to avoid detection and transfer money for illicit purposes. So then how will investigators be going about tracking down the user connected to this account? Well, the simple answer to that is analytics. The tools that law enforcement has available to it, tools like chain analysis and TRM labs, these have been made available in the last few years that are very powerful at looking at patterns, doing analysis, using analytics to see the flow of money from one account to another and see ultimately where it's accessed, where it comes out of the system, what it's being used for, because ultimately the easiest ways to identify a person or an entity that's using blockchain, that's using Bitcoin is when money goes into the system and when money comes out of the system. And using analytic tools, law enforcement is very good at determining a lot of these identities and transfers. So you talk about money going in, money coming out. Does Bitcoin eventually need to be converted into fiat currency, like dollars or euros, for it to be more useful? Does it become more traceable at that point? It can be. And whenever you have a conversion into fiat currency, into actual cash, into dollars that you're removing, whether it's through an ATM machine in some parts of the world or through a bank transaction, that part is usually traceable. The caveat to usually is it depends on whether the exchange is something that is public or that is unregulated or something that is housed in a country that does not require it to be public and regulated. For example, many in the United States know Coinbase. Coinbase is an exchange where many people have a Bitcoin account. These are regulated. You need to provide your identity in order to have an account on that system. But when you move to an unregulated exchange in a third country, in a foreign country that may not have that know-your-customer law, these accounts may be more opaque. They're harder to know the identity of the person who is taking money out or transferring it. And this is where you have predictive models. This is where you have software algorithms that help determine what the transactions were and how to follow them. So Gerard, more often than not, does Bitcoin stay as Bitcoin or does it usually turn into some sort of fiat currency? What would you say? I think that a lot of the transactions that we've seen historically since Bitcoin came out have remained as Bitcoin transactions because you can purchase things in Bitcoin and that's becoming much more popular even for things that are legitimate purchases. So Bitcoin stays as Bitcoin for the vast majority of transactions. Sometimes you do have it coming out as fiat currency. A lot of the times that's for unregulated or third market purchases of illegal goods. And that is really where law enforcement has focused a lot of energy. OK, so on that ransom note, what signals would raise suspicion that any ransom demand is not real or is fake? Well, that's more for law enforcement to determine based on the circumstances of the ransom demand itself. If the demand comes with information that suggests that the person who is sending it has intimate knowledge of the crime, of the kidnapping, or they have intimate information about Nancy Guthrie that no one would have unless they had her in their custody. So that's what police and law enforcement are looking at to see if these ransom demands are legitimate or they might be legitimate. Whether or not they use blockchain, Bitcoin or however they want to ask money, that's not as important in determining whether the note is authentic as the information that's contained in it about Nancy or the circumstances of her kidnapping. All right, understood. It's just one final question here, Gerard. Is there anything governments can do if they want to reduce the ability for criminals to use cryptocurrency? A lot of what the governments have already done is to start to regulate it increasingly, having wallets that are monitored in exchanges that are regulated, that have know-your-customer laws, that have anti-money laundering regulations like Coinbase, like other exchanges in the United States or in Europe or in Asia. So what governments are doing is trying to regulate this increasingly, but at the same time, they're developing more sophisticated software methods to track, to analyze patterns of blockchain transactions in order to identify the people behind them. And these tools are very rapidly evolving and becoming very, very accurate at determining who is behind these transactions. OK, very good. Always enjoyed our conversation, Gerard. Thank you. A pleasure. Thank you.