Earlier this March (on March 13th), Bitcoin reached a new record high touching $60,000 only to correct itself immediately after, currently trading at $40,063.30.
Just a year ago, on March 13th, 2020, BTC was trading at roughly $5,000 – giving more than 1,000% returns within a year. Quite insane, if you ask me.
If that wasn’t enough of an eye-opener, Elon Musk, co-founder and CEO of Tesla recently tweeted that all Tesla vehicles can now be purchased using Bitcoin.
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With so much happening in the world of cryptocurrency, especially so in the last few years, and the financial revolution it has given birth to in terms of innovation in payment systems and the rise of a new free market, the benefits are too obvious to miss.
However, along with the potential benefits come the potential criminal risks too. Evident by the criminal activities and illicit transactions that place over Dark Web marketplaces to purchase illegal items and weapons, and the use of crypto for crimes like money laundering and terrorist financing.
In this article, we are going to be exploring the negative implications and risks associated with the use and adoption of cryptocurrency, and also question what cryptocurrency growth means for Anti-Money Laundering (AML) programs. But before we move any further, let’s first understand what we’re dealing with.
Early Adoption of Cryptocurrency
We all know that Bitcoin (denoted by the symbol “₿”) is the first cryptocurrency and how it changed the face of financial technology when it was first introduced back in early 2009.
It allowed people what fiat money failed to offer: the power to control your own money via distribution of control. Bitcoin was almost an instant success as soon as it came out.
This is mainly because it was introduced right after the financial crisis of 2008—a time when people were starting to lose trust in banks and financial institutions and were looking for an alternative.
As an increasing number of people started to learn more about it and adopt it, the stories and news headlines began to fly about how Bitcoin was turning middle-class people into millionaires overnight – luring even more people in and accelerating the cycle.
Not long after that, investors started referring to Bitcoin as “the future of money” – a trend that is still very much alive. Given the volatility of cryptocurrencies and how they had the ability to turn people rich overnight, Bitcoin and altcoins (cryptocurrencies other than Bitcoin) attracted a lot of attention.
Crypto as a new Money Laundering vessel
With all the hype around cryptocurrencies and how they allow people to control their own money without the need for any official government ID or registration, it was only a matter of time before the technology attracted criminals as well and sooner or later was used for criminal purposes.
Since cryptocurrencies are pseudonymous and don’t require any identification of the transactors, they seemed to be the perfect tool for criminals to undertake their activities without the risk of being spotted.
What made matters more complicated is that cryptocurrencies are decentralized and not regulated by any central authority or government and don’t have any physical existence.
This, needless to say, provided an excellent opportunity for criminals to perform illicit acts. In fact, Bitcoin exchanges are responsible for an estimated total of around US$4.5 billion laundered so far since 2009. This includes US$2.8 billion that was laundered in just 2019 alone.
Latest Stats on Crypto Money Laundering 2020-2021
- One particular bitcoin address sent $36.7 million worth of BTC directly to criminally associated addresses in 2020.
- 33 arrested for cryptocurrency money laundering including 22 suspected members of the QQAAZZ criminal network, a global cryptocurrency Money-Laundering Cartel, which has allegedly laundered tens of millions of dollars for cybercriminals since 2016.
- US exchanges sent $41.2 million worth of BTC directly to criminals in 2020.
- Criminally associated bitcoin addresses sent over $3.5 billion of BTC in 2020.
- On Oct 8th, the DOJ published the Cryptocurrency Enforcement Framework including an overview of cryptocurrency-related threats, laws, and cryptocurrency regulation in the US to combat these threats, and ongoing challenges and future strategies for cryptocurrency enforcement.
- 270 cryptocurrency addresses laundered $1.3 billion in 2020 – 55 percent of criminal crypto flows were identified.
- Any companies not registered with the Financial Conduct Authority (FCA) until June 30, 2020, were required to cease trading on January 10, 2021.
Crypto Anti-Money Laundering Strategies
In recent times, criminals have found creative new ways to dodge authorities by using methods such as mixing, layering, and chain hopping so to cleanse their money acquired through illicit activities and avoid detection despite the immutability of the transactions.
To counter these tricks, regulatory bodies like the FCA and the FATF have started working closely with businesses and governments worldwide to introduce greater levels of compliance in the trading of crypto-assets.
Bitcoin ATM vendors are now also legally required to identify and track the people transacting using their systems. Additionally, most large crypto exchanges, like Binance, have started collecting KYC information from their customers and increase regulations as well.
Money Laundering is a big global financial problem. Not just for its face value, but also because it gives rise to many other types of crime and promotes a culture of dishonesty, malevolence, and unfair trade.
The sum of money laundered globally every year amounts to a jaw-dropping estimated total of USD $2 trillion. That’s roughly 5% of the world’s entire GDP! Though most of it is done via cash, cryptocurrency is the hot new vessel for criminals to try and launder huge amounts of money quickly.
What makes matters worse is the skyrocketing price of Bitcoin and the fact that digital currencies don’t have to be physically transported anywhere and can be transacted instantly.
Moving forward, governments, banks, companies, and crypto exchanges have to be extremely careful about their operations. With the rapid rate at which the world is heading towards digitalization, it is only logical to wish that authorities are able to keep up with the change.