Researcher Chainalysis, used by U.S. government agencies to track illegal flows, estimates that child abuse sites’ annual revenue in crypto leapt from around $250,000 in 2017 to almost $1 million in 2020.
Reuters reviewed Chainalysis data
relating to transactions through Dark Scandals’ digital wallets. These data show that the site’s customers used 47 exchanges, of which the three most popular were Coinbase, Finland-based LocalBitcoins and Binance. Crypto worth a total of $22,000 moved through Coinbase and LocalBitcoins between 2013 and 2019. Some trade shifted to Binance and to another exchange called ShapeShift as other platforms tightened their identity checks. Binance and ShapeShift together processed about $3,400 until Dark Scandals closed in 2020, according to the data.
The sums of money involved fail to capture the gravity of the harm being done, according to the Internet Watch Foundation, a British child sexual abuse hotline which collects data worldwide.
The IWF says the annual number of webpages it has confirmed contain such images rose over four-fold from 2016 to over 250,000 last year. During that same period, the IWF found the number of commercial sites selling abuse imagery for virtual currency exploded to 1,014 from just 41. These sites often included links for users to pay via crypto exchanges, the IWF told Reuters, declining to name companies.
“For those people looking to make money from child sexual abuse, crypto has lowered the barrier,” said Dan Sexton, the IWF’s chief technology officer.
Coinbase’s vice president of global intelligence, John Kothanek, told Reuters that the exchange works closely with law enforcement on child abuse cases, alerts authorities to potential illicit activity and closes down accounts. Coinbase has “dedicated, around-the-clock compliance and investigative teams, access to sophisticated blockchain analysis tools, and a best-in-class process for identifying criminals,” he said in a statement, adding that crypto is easier to track than traditional currency.
“We will find you and hold you accountable — this has been the case since day one at Coinbase,” Kothanek said.
Binance’s global head of intelligence and investigations, Tigran Gambaryan, is a former U.S. Internal Revenue Service agent who was involved in the Dark Scandals case. He said Binance and other exchanges provided records to the investigation team. “If not for crypto and the cooperation Binance provided, the individual behind the website would not have been identified,” Gambaryan said. LocalBitcoins and ShapeShift did not respond to requests to comment.
“Gap in the market”
Mohammad lived a double life.
In public, he appeared a normal young man, posting Instagram photos of himself at music festivals and dining out with friends. An ex-girlfriend, in an interview with investigators, knew him as “quiet and gentle.” On LinkedIn, he said he ran a marketing business called National Network that produced videos for corporate clients.
The company was a fiction, however. It was registered as the owner of DarkScandals.com, which Mohammad ran from the suburban town of Barendrecht, outside Rotterdam. He stored the site’s material – which ended up amounting to over 3,600 videos and images – on computers and hard drives at his small apartment.
Until U.S. investigators alerted the Dutch to the site, his work remained a secret, even to his friends, the judge said at his trial.
Mohammad had lived in the area since 2006, when he returned to the Netherlands after almost a decade in Suriname. Born in Amsterdam, he testified at the trial that as a child his parents died violently. Following several years at an orphanage, he moved to the former Dutch colony to live with an uncle.
Back in the Netherlands, he said he accumulated debts while studying to become a social worker, though the judge noted he rarely attended class. In mid-2012, he saw a “gap in the market” and set up Dark Scandals. He hoped it would improve his “bad financial situation,” he testified.
Once launched, its homepage advertised “real blackmail, rape and forced videos of girls,” along with “sex videos of real schoolgirls” and “passed out teens.” The Dutch national prosecutor, Brechtje Lijnse, told the court the images were “aimed at the total humiliation of women.” She cited videos depicting underage girls being extorted into sexually abusing themselves and the rape of a child under the age of two.
“I have seen these images and they never let me go,” said Lijnse, who has spent a decade investigating child sexual abuse.
Mohammad curated this material into packages that users could download in return for a new video or a payment priced in bitcoin. The U.S. indictment related how in December 2013 he rejected one uploaded clip, telling the provider in an email it was “just acted, we don’t accept video’s like that.” Mohammad signed the message, which was obtained by investigators, with the moniker “Dark.”
On the site’s forum, users praised his collection, referring to the girls and women it featured as “sluts” and “whores.” “Great stuff!” wrote one user in a 2012 thread about videos showing women being tortured.
PayPal cracked down on his customers’ payments, however, blocking Dark Scandals around a year after its launch, according to the Dutch court’s written judgement. PayPal did not respond to requests for comment.
PayPal and other financial firms had been working for years with nonprofit groups such as the U.S. National Center for Missing & Exploited Children to disrupt offenders’ attempts to use the firms to buy imagery. John Shehan, senior vice president of NCMEC’s exploited children division, told Reuters that as a result the financial industry largely “snuffed out” such activity on their platforms. Crypto, Shehan said, offered a new avenue.
While banks and payment platforms demanded more details from online merchants, many crypto exchanges for years requested little or no information from clients. Touting crypto as a tool to free people from government control of the financial system, some supporters rejected the idea that exchanges should collect substantial data on users.
Binance’s CEO Changpeng Zhao told staff in a 2020 video call that “people should have privacy (as) part of financial freedom.” The same year, Coinbase’s CEO Brian Armstrong said he expected so-called “privacy coins,” which are designed to be untraceable, to gain mainstream adoption as “it doesn’t make sense in most cases to broadcast every payment you make.” Erik Voorhees, founder of the ShapeShift exchange, wrote in a blog post last year, “Surveillance of all people cannot be our standard.”
Asked at his trial for his opinion of crypto, Mohammad noted, “Privacy is something that a lot of users value.”
Barred by PayPal, his clients began transferring bitcoin and another virtual token, ether, to him via four digital wallets. In the early years of the site, blockchain data show that many of these customers used the crypto exchanges Coinbase and LocalBitcoins to make their transfers. LocalBitcoins didn’t require customer identification until 2019. Once Binance launched in mid-2017, allowing customers to trade anonymously, it was used, too, along with ShapeShift. Mohammad traded the funds he received for euros at a Dutch crypto broker named Bitonic, he testified.
Bitonic said that while it couldn’t comment on an individual case “we…