Chainalysis is now facing scrutiny over blockchain analytics tools. Lawyers have termed the science behind the on-chain analytics software as junk science, especially its reliability in high-profile criminal cases. The Wall Street-backed blockchain analytics firm offers software that helps track fraudulent activities in the crypto industry.
The recent lawsuit against Roman Sterlingov highlighted the unreliability of the Chainalysis tool by the federal court. This follows recent data by the firm of two hacks by the infamous Lazarus group in the last ten days, which saw a loss of $40 million on Sep 4 and a subsequent $55 million on September 12 on Stake and CoinEx, respectively.
Is Chainalysis dubious in law enforcement?
Blockchain analytic tools are expected to examine all information flowing through blockchain ledges to catch suspicious activity on the distributed ledgers. These tools help bolster the protection of entities and individuals against fraudulent activities such as money laundering. The Anti-money laundering tools and the Know Your Customer features are the two most popular use cases of these tools.
Chainalysis has a wide clientele, including government agencies from about 50 countries; however, the new high-profile case has sparked a debate around the credibility of these tools and the legitimacy of their application in federal court.
In the Roman Sterlingov case, a Russian citizen accused of operating Bitcoin fog is currently under arrest after these analytics tools were used to intercept his crypto-related criminal activities for over a decade. Bitcoin fog handled about $335 million within the decade, proceeds from drug activities, Cybercrime, and identity theft.
The US law enforcement relied on Chainalysis tools to reveal the Bitcoin Fog’s operator by analyzing various transactions. However, this raised questions on whether this move was reliable, especially from the accused defense counsel, who argued that the underlying technology is unreliable and has no place in the court.
Tor Ekeland has denounced the tools by stating that the Reactor software has made numerous assumptions about the crypto transactions, leading to his client’s false accusations. The attorney indicated that Reactor software heuristic reasoning could not be conclusive as there is no known peer review vouching for their accuracy, terming the tools as junk science.
Junk Science is, by definition, technology that has not undergone testing and scrutiny and is thus unreliable in law enforcement, making any evidence from such technology inadmissible. The lawyer goes forward and states that there is no conclusive evidence that his client was involved in the operation of Bitcoin Fog and that his arrest was based on shoddy forensics by Chainalysis.
He adds that software cannot in any way be reliable in court as it does not illuminate its error rate or pass rate, reinforcing its accuracy.
Blockchain analytics tools have also faced scrutiny previously from the Crypto 6 case, where Ian Freeman, in the” Free Talk” radio show, also stated that this software failed to meet the Daubert Benchmarks for admissible evidence.
Chainalysis has secured numerous contracts from government agencies, and various prosecution cases have employed data from the firm. The current question over the network’s reliability could set a precedent on how the tools can be utilized in the future, especially as part of evidence presented before courts.
Could Chainalysis be wrong about the Lazarus Group?
Ekeland’s sentiments over the tools’ reliability in showing a connection between Sterling and Bitcoin Fog raise other questions on whether the tools have misguided prosecutions and market assumptions before. One notable contribution by the Chainalysis tools is tracing money laundering activities by the Lazarus group, a notorious organization with strong links to North Korea involved in various crypto attacks.
Data from these tools was used to prosecute three individuals, Huihui (Wu), Cheng Hung Man (Cheng), and Sim Hyon Sop (Sim), for money laundering conspiracies working with the Lazarus group. According to Chainalysis, the hackers used mixers to launder the money before converting it into cryptocurrency.
According to the Lawyer’s sentiments, the Department of Justice relied on this data to charge the individuals, which could now be errant. Chainalysis data from the Reactor chain, the firm’s pride and Joy, has also helped secure successful prosecutions in other cases, such as the Ryan Felton illicit ICO promotion conviction.
