Bitcoin Payments by Pedophiles Frustrate Child Porn Fight

In a two-story building in the English university town of Cambridge, researchers at the U.K.’s Internet Watch Foundation pore over online images of sexually abused children in an effort to remove them from the Web. It’s dispiriting work, and this year it grew more complicated when they found a new payment button next to the icons of Visa, MasterCard and PayPal: Bitcoin.

The group’s researchers in January started seeing the crypto-currency being accepted for child porn purchases ranging from as little as $1 to hundreds of dollars. Since then, the foundation has discovered almost 200 websites that accept bitcoin, and researchers in the U.S., Germany and several other countries are seeing the same. More than 30 sites accept only bitcoin, the IWF says.

“The emergence of bitcoins as payment for child sexual abuse represents the newest challenge in the fight” against child pornography, said Sarah Smith, a researcher at the IWF. “This is just the beginning.”

Police and corporate gumshoes across Europe and the U.S. in recent years have made progress in curbing credit card payments for child porn, making it more difficult for sellers to profit from their images. Bitcoin has undermined those efforts by offering buyers and sellers a way to cloak their identity, police say.

The currency provides “commercial child sexual abuse website operators with a method to revitalize their payment stream,” said John Shehan, executive director of the U.S. National Center for Missing and Exploited Children in Alexandria, Virginia.

Underworld Appeal

Proponents applaud the decentralized currency for its promise of anonymity, absence of banking fees, and position on the fringes of the financial industry. But those same attributes make it appeal to the underworld. Police in at least a half-dozen countries say criminals have used it to buy weapons, hire a hit man, purchase stolen credit card numbers -- and pay for child pornography online.

“Over the last few years, the FBI has seen Bitcoin and other virtual currencies being used as a method of payment in a wide variety of illicit activities,” Joshua Campbell, a special agent with the U.S. Federal Bureau of Investigation, wrote in an e-mail.

When Japan’s Mt. Gox, formerly the world’s biggest bitcoin exchange, shut down in April after a half-billion dollars of the currency was stolen, U.S. federal agents said the service had been used for about $60 million a month in payments for illegal products such as child pornography.

Eric Eoin Marques, an Irish-American who the FBI calls the “largest facilitator of child pornography online,” has been in a Dublin jail since August 2013, fighting extradition to the U.S. on charges related to child porn. Police say Marques provided Web hosting to numerous child porn websites, and on the same server he also ran a bitcoin exchange.

Efforts to contact Marques’ attorney were unsuccessful, and the FBI and court officials in Ireland and the U.S. declined to comment on the case. In an interview with the Irish Independent newspaper last year, Marques’ father said his son was simply an operator of a Web hosting company and was innocent of the child porn charges.

Unlike credit cards, which are linked to a specific person, bitcoins typically shield the identity of their owners. In most cases, it takes nothing more than an e-mail address to create an account, and only a handful of countries regulate the currency.

Patrick Murck, the general counsel for the Bitcoin Foundation, says the group is doing what it can to stop the currency’s use for illicit activity. Murck said virtual currencies will increasingly strive to scrub their image to ensure growth and avoid increased regulatory oversight, though he acknowledges it’s “naïve” to think bitcoin isn’t being used for child pornography.

Digital Abuse

“The people that do this stuff should burn in hell,” Murck said. “The more we can do in a proactive way to prevent digital currencies from being abused, the better.”

Authorities have shut down virtual currencies that allowed criminal use. E-Gold, an online money transfer service based on the value of gold, was shuttered after its founder in 2007 pleaded guilty to charges related to money laundering.

Liberty Reserve, which prosecutors called a “black-market bank,” was taken offline last year after U.S. federal agents said they uncovered more than $6 billion worth of anonymous transfers for illegal services including child porn.

Some advocates say better regulation, such as applying anti-money laundering rules to bitcoin, would help fight criminal use. Every bitcoin transaction is recorded in a public ledger called the blockchain, a code that can be traced to individual wallets.

“Skilled experts can follow the tracks,” said Jerry Brito, the head of Coin Center, a researcher focused on crypto-currencies like bitcoin. “There was this perception that it was anonymous, and this has been shown not to be the case.”

Bitcoin isn’t the only digital currency used in the child porn business, said Troels Oertling, the head of the cybercrime unit at Europol in The Hague. Britain’s Ukash and Paysafecard, based in Vienna and backed by the European Union, have been used to pay for such material, he said.

“Any way of creating anonymity for payments is of interest to criminals,” Oertling said. “They have only one fear, and that’s to be discovered.”

Wendy Harrison, a spokeswoman for Ukash in London, said the company works with police worldwide to stamp out fraud and abuse of its systems. Paysafecard says it has had no reports of the service being used to pay for online child porn.

“We are not interested in anything illegal that costs us a lot of money to fight back and ruins our reputation,” said Maximilian von Both, Paysafecard’s head of regulatory affairs. “We want to be a white business.”

Money Laundering

The Digital Economy Task Force, which fights child exploitation online, has called for limits on anonymity on the Internet. The group, which brings together governments and industry, has called for countries to regulate virtual currency exchanges and to apply anti-money laundering rules to them.

Ernie Allen, co-chairman of the task force and director of the International Center for Missing and Exploited Children in Alexandria, Virginia, says existing regulations in many countries could be applied to virtual money. The U.S. Treasury requires virtual currency exchanges to be registered, hold a license, and maintain some information on users.

Without such rules, Allen said, the only way police can catch criminals is by posing undercover on their forums and bulletin boards, or waiting for the bad guys to make a misstep.

“If we depend on offenders to make mistakes, then we are catching only the dumb ones,” Allen said.

The Internet has spurred growing abuse of children as pedophiles face little chance of detection, he said, and the risk is even lower when “they can use unregulated, unbanked currencies that move outside the financial system.”