Hiding assets via Bitcoin to avoid being 'checked' by his wife

A divorced wife didn't know her husband had a wallet containing the equivalent of $500,000 in Bitcoin, until the "hunter" stepped in.

During the divorce process, Sarita felt suspicious when the husband did not have much declared assets, despite the income of up to three million USD per year. She spent half a year searching with the help of an investigative accountant, but only discovered 12 Bitcoins with a value of more than $500,000 in a digital wallet that was not mentioned by her husband.

"I know about Bitcoin and the like, but not very knowledgeable. We don't discuss cryptocurrencies or investment possibilities in this area. It was a shock to me," said Sarita, who is closing. marriage lasted more than 10 years, said.

Financial infidelity is becoming increasingly complex, as participants continuously circulate assets across different blockchains. A survey conducted by NBC News shows that more than 20% of Americans have ever invested, traded or used cryptocurrencies, with 18-49 year olds making up the top percentage.

Cold wallet developed by Ledger. Photo: AFP

Mark DiMichael, a digital forensics expert with 14 years of experience, tells of another struggle between a couple preparing for divorce, which revolved around a password-protected Ledger device.

The husband owned a Ledger cold wallet , before the wife found and took it. "The wife has the Ledger but does not know the password. The husband knows the password but does not hold the device. No one can access the money in it without the cooperation of the other person," he said.

DiMichael said he has discovered millions of dollars worth of cryptocurrencies since he started tracing digital assets in 2018. According to him, cryptocurrencies stored in cold wallets are difficult to recover, but can still be detected. . “If they make a transaction and move the funds to a cold wallet, the information about the activity is still saved on the blockchain,” DiMichael said.

Divorce attorneys in US states such as Florida, New York, Texas and California, along with investigators and financial advisors, argue that the law is currently not keeping up with the methods of earning and accumulating digital assets. , which is beyond the control of a centralized intermediary such as a bank.

How Hunters Find Bitcoin

Finding hidden crypto wallets before divorce has become a whole new business for digital investigators in the US. They say blockchain maintains a public ledger, but some have found very sophisticated ways to hide their financial activity.

“Cryptocurrencies are not regulated by centralized banks, so investigators cannot obtain subpoenas and obtain information about the digital funds held by those involved,” said divorce attorney Kelly. Burris in Texas said.

The ideal way would be to ask the court to issue subpoenas with centralized exchanges. If unsuccessful, they have to search the person's computer and phone to find the wallet address, then analyze the information on the blockchain.

Nick Himonidis, a New York-based digital investigator, says 25% of his pre-divorce investigations involve cryptocurrency. When he first started searching, it all revolved around Bitcoin, Ether and some major cryptocurrencies. Meanwhile, CoinMarketCap now lists over 24,000 different cryptocurrencies, with a total market value of around $1.1 trillion.

"We don't just have to track a few blockchains like before. Now there are hundreds of cryptocurrencies with independent blockchain systems," he said.

One of the core elements of Bitcoin is a public ledger, which stores all transactions in history and can be viewed by anyone. However, there are still anonymous cryptocurrencies such as Monero, Dash, and Zcash that are operated on a private blockchain, which hides all transaction details such as sending and receiving addresses, as well as the amount of money transferred.

Himonidis admitted that tracking and finding transaction information with Monero was "nearly impossible", although he once found the equivalent of $700,000 in Monero on a MacBook during the asset declaration process. "I found a command-line Monero wallet. Couldn't find it using the Finder feature on the Mac, but could only type the command line to access the wallet," he said.

When looking for cryptocurrencies, investigators and lawyers also pay special attention to physical wallets or electronic devices that can serve as a "cold storage" system for cryptocurrencies.

Cryptocurrency users can choose to store it hot, cold, or a combination of both. Hot wallets are connected to the Internet and allow easy access for users to use when needed, but are vulnerable to intruders or detection during pre-divorce investigations. Cold wallets use their own passwords and store digital currency on devices that are not connected to the Internet. Finger-sized devices like the Trezor and Ledger offer a way to secure both the wallet and the key to access it.

Coins that simulate Bitcoin. Photo: Reuters

Himonidis had once removed more than $2.3 million in cryptocurrencies from a Coinbase account in the months leading up to the divorce hearing. The funds were not converted to regular currency, but entered a wallet outside of Coinbase in 14 individual transactions. “All of them are concentrated on 2-3 wallets on exchanges that do not operate in the US and are not regulated by the US,” he said.

And DiMichael said that "jumping back and forth between blockchains" is also becoming a popular way to cut the tail of an investigator. Blockchain developers create many bridges to help users transfer tokens back and forth, add more payment options, and play a vital role in decentralized finance development. However, these bridges pose an obstacle for investigators looking to track down digital assets.

"This is a non-stop arms race," said Himonidis.