While one of the main criticisms of cryptocurrencies is their use in crime, particularly financial evasion and ransomware payments, crypto criminality appears to be taking a new violent turn. The high-profile kidnapping in Norway of Anne-Elisabeth Falkevik Hagen, billionaire Tom Hagen’s wife, on October 31, 2018 has yielded few clues and confounded law enforcement officials. Her abductors have demanded a ransom of approximately $10 million payable in the lesser known cryptocurrency monero (market cap $735 million), raising the specter of more organized personal threats where the relatively low traceability of cryptocurrencies makes them the thrift of choice for ne’er-do-wells. This case also signals a shift away from bitcoin, which has more robust crime fighting tools, towards alternate cryptocurrencies, where criminals have more than 1,600 cryptocurrencies to choose from.
The Norwegian police made this case public due to the lack of clues on Mrs. Hagen’s whereabouts and the lack of evidence or proof of life, which is one of the tell-tale signs of a negotiable kidnapping. Norway has been gripped by this unfortunate event, not only for the unusual nature of the case, but for the crime itself, which is incredibly rare in Scandinavia. This is not the first time there is a demand of a ransom payment or coercion in cryptocurrency. However, the process and demand for crypto ransoms have historically been reserved for what security professionals call “express kidnappings.” As the name suggests, an express kidnapping is a short term, if violent, curtailment of an individual who is released on the payment of lower sums of ransom money or cryptocurrencies typically paid directly by the victim. When express kidnappings first emerged, victims were taken on rides to various ATM machines, until they could withdraw their maximum daily limits. Thereafter, they were typically let go with bumps and bruises, but alive.
Since the advent of bitcoin 10 years ago (the most widely circulated and best known cryptocurrency), express kidnappings and physical coercion have been a part of the tradeoff individuals have had to contend with by making themselves a veritable bank. It would stand to reason that with the advent of entirely decentralized banking and wealth creation, the onus of “hardening” a target would shift from institutions like banks to individuals. Crypto holders have since gone to great lengths to protect their crypto wealth from threats real and virtual. The Norwegian case, however, along with a recent case in Costa Rica, which netted 12 arrests in an organized kidnapping ring, suggests that comparatively petty crypto crime and physical violence may be getting more organized and moving up-market, even targeting individuals who have no crypto assets themselves.
What these cases also suggest is that insurers, such as providers of kidnap and ransom protection, may want to quickly orient themselves and perhaps even have a store of cryptocurrencies to facilitate ransom payments. Just as cyber crime developed veritable customer service standards, particularly with ransomware payments, which yield a greater than 90% recovery rate for certain sectors, commercially oriented kidnappings can end positively. The scourge of economically motivated kidnappings has similarly been abated through skilled negotiators, operating norms such as proof of life, and successful recoveries based on the victims and their loved one’s compliance and crisis response capabilities. Adding a dimension of technological or digital literacy to this challenge, such as demands for millions in monero, bitcoin or other cryptocurrencies, which appears to be on the ascendant, will only complicate matters for families, law enforcement and crisis responders.
These cases, furthermore, will continue to blunt broad market adoption of cryptocurrencies, where most of the world’s regulators are still on the sidelines of the asset class. Meanwhile, the enhanced traceability of major cryptocurrencies, such as bitcoin, down to the micropayment level, is aiding law enforcement and perhaps even shifting criminality down to lower circulation alternatives. Indeed, monero, has been on FBI watch lists for this very possibility for some time now. High net worth individuals have always had to contend with personal security risks and the blurred lines between private and institutional wealth. Adding in a new potential barrier of technical literacy with cryptocurrencies as a means of thrift may only complicate matters and add to the unique risks posed by this asset class.
As the Norwegian drama unfolds and enters its fifth month without resolution, one can only hope for the safe return of Mrs. Hagen. A glimmer of hope has been provided through recent communications with the suspected kidnappers, but so far, no proof of life has been given and few leads have been secured by law enforcement, hence their appeals for public support. Law enforcement, high net worth individuals (particularly the crypto nouveau riche) and insurers should take special note of how this case unfolds. Like with all crime fighting and risk management, you must be right 100% of the time and the threat must be right once.
