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Finance & Development, September 2019, Vol. 56, No. 3 PDF version

The Truth about the Dark Web

Intended to protect dissidents, it has also cloaked illegal activity

Aditi Kumar and Eric Rosenbach

In the late 1990s, two research organizations in the US Department of
Defense drove efforts to develop an anonymized and encrypted network that
would protect the sensitive communications of US spies. This secret network
would not be known or accessible to ordinary internet surfers. And while
the original clandestine intention was never fully realized, some of the
researchers saw a different value proposition at hand—launching a nonprofit
focused on anonymity for human rights and privacy activists.

Enter the Tor network, short for “The Onion Router,” given the many layers
of encryption that guard passing information. Tor lives on the fringe of
the internet and serves as the underlying technology of the dark web—a
collection of hidden sites inaccessible via a regular browser and not
indexed by search engines such as Google. The Tor browser—a free
download—is all you need to unlock this hidden corner of the web where
privacy is paramount. Radical anonymity, however, casts a long shadow.

The truth about the dark web is that in addition to offering extreme
privacy and protection from the surveillance of authoritarian governments,
it facilitates a growing underground marketplace that sophisticated
criminals use to traffic drugs, stolen identities, child pornography, and
other illicit products and services. And with untraceable cryptocurrency as
the primary means of payment, close cooperation between law enforcement,
financial institutions, and regulators around the world is required to
tighten the screws on nefarious activity.

The gray areas

Today, over 65,000 unique URLs ending with .onion exist on the Tor network.
A 2018 study by computer security firm Hyperion Gray catalogued about 10
percent of these sites and found that the most prevalent functions
facilitate communication via forums, chat rooms, and file and image hosts,
as well as commerce via marketplaces. These functional roles, particularly
related to communication, support many uses that are considered legal and
legitimate in free societies. Furthermore, a 2016 study by research firm
Terbium Labs analyzing 400 randomly selected .onion sites suggests that
over half of all domains on the dark web are in fact legal.

For individuals living under oppressive regimes that block large parts of
the internet or punish political dissent, the dark web is a lifeline that
provides access to information and protection from persecution. In freer
societies, it can be a critical whistle-blowing and communication tool that
shields people from retribution or judgment in the workplace or community.
Alternatively, it can simply deliver privacy and anonymity for those wary
of how corporations and governments are tracking, using, and potentially
monetizing their data. Today, many organizations maintain a hidden website
on Tor, including nearly every major newspaper, Facebook, and even the US
Central Intelligence Agency (CIA). This is because a Tor website
demonstrates a (sometimes symbolic) commitment to privacy. The New York Times and the CIA, for example, are both hoping to
facilitate communication with virtual walk-ins who can provide sensitive
information.

On the flip side, the same privacy and anonymity that deliver protection
from tyrants and targeted advertisements also make the dark web a
springboard for crime. Some of the more prevalent illicit activities
include arms trafficking, drug dealing, and the sharing of exploitative
content—often involving children—such as pornography and images of violence
and other types of abuse. Websites support the rhetoric of neo-Nazis, white
supremacists, and other extremist groups.

The pairing of dark web services with cryptocurrencies has led to
expectations of a boom in crime. A decade ago, an unknown cryptography
expert (with particular expertise in cracking passwords) who used the alias
Satoshi Nakamoto developed the world’s first currency and payment network
not controlled by a national government: Bitcoin. Originally a niche medium
of exchange for the technology community, Bitcoin emerged in 2011 as the
currency of choice for drug dealers conducting transactions on a dark-web
site known as the Silk Road. Over the past five years, the combination of
an encrypted network hidden from most of the world and a transactional
currency that is nearly untrackable by law enforcement officials resulted
in a small, but significant, marketplace of illicit vendors selling illegal
wares.

Of the close to 200 domains catalogued as illegal by Terbium Labs, more
than 75 percent appear to be marketplaces. Many of these are fueled by
Bitcoin and other cryptocurrencies, such as Monero. Recreational and
pharmaceutical drugs are the most popular products, followed by stolen and
counterfeit documents such as identities, credit cards, and bank
credentials. Some sites offer hacking and technological crime services,
including malware, distributed denial of service attacks, and hacking for
hire. A good number offer a mix of these and other products, including
pornography and counterfeit goods.

Although the serious nature and rapid growth of illicit transactions on the
dark web should concern governments and global financial institutions, the
overall portion of worldwide commerce transacted on the dark web is
minuscule compared with global illicit commerce. A recent report by a
leading crypto-payment analytic firm, Chainalysis, shows that Bitcoin
transactions on the dark web grew from approximately $250 million in 2012
to $872 million in 2018. The firm projected that Bitcoin transactions on
the dark web will reach more than $1 billion in 2019. If correct, it would
represent a record-setting level of illegal transactions in this arena. The
report also noted that the proportion of Bitcoin transactions tied to
illicit deals has declined by 6 percent since 2012 and now accounts for
less than 1 percent of all Bitcoin activity. Even more broadly, the United
Nations estimates that the amount of money laundered globally in one year
is 2 to 5 percent of global GDP—between $1.6 trillion and $4 trillion.

Even though the total economic volume of illicit dark web activity remains
relatively small, many of the most corrosive threats to society today
operate in the shadows of the Tor network and thus merit the attention of
international regulators, financial institutions, and law enforcement
agencies.

Policing the shadows

Protecting political dissidents, privacy advocates, and whistle-blowers
should not come at the expense of empowering child abusers, arms
traffickers, and drug lords. Therein lies the challenge for regulators and
law enforcement agencies: to devise approaches that walk the fine line of
protecting liberal principles in an age of information control while
identifying and eradicating the most insidious activities on the dark web.
Over the past several years, the international community has made
significant progress addressing these challenges by improving information
sharing, sharpening law enforcement’s technical capabilities to take down
major illicit marketplaces, and regulating the transfer of cryptocurrency
transactions.

Addressing the most nefarious activities on the dark web starts with
improved information sharing among law enforcement agencies and financial
institutions. The global nature of the dark web makes international
cooperation imperative. During 2018–19, Interpol and the European Union
brought together law enforcement agencies from 19 countries to identify 247
high-value targets and shared the type of operational intelligence
necessary for enforcement. The results are promising: just this year,
efforts allowed members of the group to make arrests and shut down 50
illicit dark-web sites, including Wall Street Market and Valhalla, two of
the largest drug markets.

The growth of illegal dark web transactions has also spurred many
governments around the world to disrupt criminal activities by improving
the capabilities of domestic law enforcement agencies such as the US
Federal Bureau of Investigation (FBI). For example, the FBI has reportedly
conducted operations that allow it to “de-anonymize” Tor servers. The FBI
does this by establishing nodes in the network that allow the agency to see
the identities and locations of some illegal Tor-based webpages. The first
significant action was the FBI’s takedown of the “Silk Road 2.0” website,
the leading illicit dark web marketplace in 2014. The investigation
revealed that, during its two and a half years in operation, the site had
been used by several thousand drug dealers and other unlawful vendors to
distribute hundreds of kilograms of illegal drugs and other illicit goods
and services to well over 100,000 buyers. The site was used to launder
hundreds of millions of dollars from these unlawful transactions. All told,
the site had generated sales totaling more than 9.5 million in Bitcoin
valued, at the time, at approximately $1.2 billion. AlphaBay and Hansa
market, two of the biggest successors of Silk Road, were shut down in 2017.

Dark web enforcement capabilities have continued to grow, including a
recent Dutch operation to hijack a leading dark web merchant, anonymously
run it for a month, and then use the information collected to disrupt
dozens of other dark web merchants.

Need for new regulations

In addition to conducting disruption operations, governments and
international institutions are attempting to directly regulate the
cryptocurrencies that are fueling dark web marketplaces. In June 2019, for
example, the Financial Action Task Force issued guidance that urges
companies processing cryptocurrency transfers to identify both the sender
and receiver of fund transfers. The guidance follows the recommendation of
the 2018 G20 Summit, in which leaders asked international regulatory
agencies to consider policy responses for crypto assets, particularly
related to know your customer, anti–money laundering, and countering the
financing of terrorism. The start-up ecosystem of exchanges, wallets, and
other crypto payment facilitators is far from having the necessary
infrastructure to adopt such financial-sector-like standards, but
supervisors need to begin laying the groundwork for enhanced scrutiny. The
impending launch of Libra, Facebook’s cryptocurrency, will only make this a
more pressing concern as the barriers to adopting virtual assets are
lowered for Facebook’s nearly 2 billion-plus users.

A fine line

Authoritarian regimes will continue efforts to block access to the dark web
and the threats to legitimacy that it poses by enabling dissidents and
activists. Faced with this threat, the natural reflex of liberal civil
societies will be to advocate that Tor remain unmonitored and unpoliced to
protect free expression and privacy. The reality of the dark web is much
more complicated, requiring a nuanced approach from supervisors and law
enforcement agencies to thwart activities that are considered illegal and
immoral in free societies, all the while protecting the very real benefits
of an anonymized network.

PHOTO: ISTOCK / SOUTH_AGENCY
Opinions expressed in articles and other materials are those of the authors; they do not necessarily reflect IMF policy.

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