FATA News Alert
Contributing Author: Ray Sang, CPA, CITP, CISA
In the News: Using Crypto Tracing for Your Cases
Background:
In recent years, cryptocurrency has revolutionized financial transactions, reshaping how value is exchanged globally. With its decentralized structure and cryptographic safeguards, digital currency has increasingly become a focal point in legal matters, particularly in civil litigation. Forensic accountants play a crucial role in these scenarios, tasked with the intricate job of unraveling the complex web of cryptocurrency transactions. Imagine a prominent divorce case where the husband faced allegations of concealing assets in Bitcoin. This situation required skilled forensic analysis to trace and assess the hidden funds.¹ Similarly, in a hack targeted a crypto exchange, forensic experts were instrumental in tracing the financial trail through multiple cryptocurrency exchanges to uncover the truth.² This technical alert aims to equip forensic accountants with essential insights and guidance on the latest crypto tracing techniques, ensuring they are well-prepared to tackle the sophisticated challenges posed by cryptocurrency in legal settings.
Main Issues:
Crypto tracing, the process of tracking cryptocurrency transactions, presents unique legal challenges. The anonymity and decentralization of cryptocurrencies complicate asset tracing in legal cases. Unlike traditional financial systems, cryptocurrency transactions are often pseudonymous, making it difficult to trace funds and identify involved parties. The rapid evolution of blockchain technologies and privacy-focused cryptocurrencies further challenge tracing efforts. Additionally, mixing services and tumblers obscure transaction trails, creating significant obstacles for forensic accountants.
Crypto tracing technology is rapidly evolving with many blockchain analysis platforms, which are essential for tracking and analyzing digital assets. These platforms offer services such as transaction monitoring, risk assessment, and identifying suspicious activities. Crypto tracing involves on-chain analysis of blockchain data and off-chain analysis using information from exchanges. Forensic accountants use these methods to detail asset movements, crucial in legal cases. Notable examples include tracing stolen bitcoins in the Mt. Gox case³ and uncovering fraud in an ICO scam⁴, both leading to significant legal outcomes.
Practitioner Best Practices:
As forensic accountants, it is crucial to stay abreast of these developments to effectively navigate legal cases involving digital assets. One of the most significant technological advancements impacting crypto tracing is the integration of artificial intelligence and machine learning. These technologies enhance the ability to analyze vast amounts of blockchain data, identifying patterns and anomalies that may indicate fraudulent activities or illicit transactions. As AI algorithms become more sophisticated, they are expected to provide deeper insights and more accurate predictions, thereby improving the efficiency and effectiveness of crypto tracing efforts. In addition, it is important to be creative in solving many practical legal issues involving crypto transactions. One such advancement is the use of Non-Fungible Tokens (NFTs) to serve legal summons. This novel approach has been gaining traction, offering a unique and verifiable method to deliver legal notices in the digital realm.⁵ Recent case law has begun to recognize and validate this practice, setting precedents that embrace the digital transformation of legal procedures.⁶ By utilizing NFTs, legal professionals can ensure that legal notices/documents, such as summons, are not only served efficiently but also maintain a secure and immutable record of the transaction.
Looking ahead, the future landscape of cryptocurrency in legal contexts is likely to be shaped by regulatory developments. Governments and regulatory bodies worldwide are increasingly focused on establishing frameworks to govern the use of cryptocurrencies. These regulations will play a critical role in defining the parameters within which forensic accountants operate, potentially introducing new compliance requirements and standards for crypto tracing.
Takeaways
In conclusion, it is important to revisit the critical points we have explored regarding the integration of crypto tracing in legal cases. The dynamic nature of cryptocurrency and blockchain technology requires that forensic accountants stay informed and adaptable. This field is rapidly evolving, and staying ahead of the curve is essential for effective practice and accurate analysis. Forensic accountants are encouraged to continually enhance their skills and expand their knowledge base. Engaging in further training and professional development opportunities is not merely beneficial - it is essential. By doing so, professionals in this field can maintain their expertise and remain invaluable resources in the pursuit of justice in cases involving digital assets.
Learning Resources:
Crypto Sleuthing for Forensic Accountants: Practical videos and tools developed by the AICPA Forensic and Litigation Services (FLS) Digital Assets Task Force to guide forensic accountants in tracing and investigating cryptocurrency transactions.
Digital Assets and Blockchain Resource Center: Comprehensive resource offering glossaries, technical Q&As, and practice guidance to support work with blockchain and digital assets.
About
The Forensic Accounting Technology & Analytics (FATA) task force serves as a strategic leadership group for the integrated areas of accounting information systems, data analytics, and digital financial forensics. This group facilitates uniquely cross-trained experts into an innovative and strategic thought leadership team, whose primary roles include: stimulating forward-thinking solutions to emerging FATA issues in our global economies; promulgating best practices that are unique to FATA practitioners and environments; identifying and developing FATA resources to enhance learning and professional development opportunities; and educating members and stakeholders to promote FATA’s mission through strategic global relationships.
¹ See Chao Liu v. Junhua Chang, No. 78999-6-I (Wash. Ct. App. Div. I 2020).² Andrew R. Chow, Inside the Chess Match That Led the Feds to $3.6 Billion in Stolen Bitcoin, Time, (Feb. 10, 2022). https://time.com/6146749/cryptocurrency-laundering-bitfinex-hack.³ Justice Department Alleges Russian Nationals Responsible for Mt. Gox Hack, Investopedia (June 9, 2023). https://www.investopedia.com/u-s-doj-charges-2-russian-nationals-for-laundering-bitcoin-from-mt-gox-hack-7510532.⁴ See Rosario Girasa, Criminal Prosecutions and Civil Litigation Concerning Blockchain Technologies, in Regulation of Cryptocurrencies and Blockchain Technologies: National and International Perspectives 213 (Palgrave Macmillan 2022).⁵ See Ray Sang, Serve the Unknown in the Crypto Age, Fordham Intell. Prop. Media & Ent. L.J. Blog (Apr. 24, 2025), http://www.fordhamiplj.org/2025/04/24/from-whiskey-bottles-to-wavy-sneakers-exploring-the-intersection-of-trademark-law-and-the-first-amendment-2/.⁶ People of the State of N.Y. v. Unknown Parties in Ownership and/or Control of Digital Wallet Addresses, Index No. 700647/2025 (N.Y. Sup. Ct. Queens Cnty. June 11, 2025) (Lin, J.).