Cryptocurrency & Money Laundering: An Assessment (Part 2)

Cryptocurrency & Money Laundering: An Assessment (Part 2)

In this article, know-how Bitcoin transactions make money laundering easier for criminals. Also, discover how criminals are increasingly seeking to exploit blockchain technology for their financial benefit.

With all the new avenues that the world of Crypto offers to improve one’s financial standing, there is also the major threat of money laundering plaguing the industry. Why? That’s because cryptocurrencies are conducted, transferred, & stored online. This offers more possibilities for cybercriminals to instantly move their funds across borders, without their transactional activities getting regulated.

In fact, it is because of this very freewheeling nature of cryptocurrencies that the experts are finding it difficult to impose regulations on the industry. To policymakers who are used to dealing with clear-cut definitions for assets, regulating crypto is a huge modern-day challenge.

What makes money laundering so easy in the crypto industry?

  • Laundering cryptocurrencies via online exchanges & then converting them to cash is much easier & practical than laundering bags of cash across borders.
  • Next, there is a great degree of anonymity associated with Bitcoin transactions. And in an interesting manner too; these transactions are pseudonymous. So, the public Bitcoin addresses used for transactions are not registered in the names of individuals involved in the transactions.
  • Third, all the transactions are stored publicly on the public decentralized ledger—blockchain. But only the individual making the transaction has access to the account and Bitcoin wallet. So, federal agencies find it difficult to link a particular Bitcoin transaction back to any one individual or entity.
  • A majority of wallet providers & online crypto exchanges have only a few anti-money laundering or Know Your Customer regulations. This is, of course, a very attractive option for cybercriminals.
  • In contrast to the strict regulation in traditional financial and banking options, that at the state and federal levels is very lenient. As such launderers of cryptocurrencies evade scrutiny & regulation of various law enforcement agencies within and outside the country.

So, it is practically impossible for anyone to detect the origin and destination addresses of illegal Bitcoin transactions. Thus, money launderers cash out without any fear of ever being identified. 

What are the warning signs of crypto laundering?

  • Several high-value transactions occur within a short period.
  • Crypto funds getting transferred to wallets in unregulated or minimally-regulated jurisdictions.
  • Crypto transactions totaling amounts that are just under the (set) amount that trigger reporting requirements.
  • Immediate withdrawal of cryptocurrency deposits.
  • Transactions involving multiple cryptocurrencies on many accounts.
  • New account(s) funded with a large amount that is immediately withdrawn.
  • Deposits from unregulated jurisdictions or those with poor AML and KYC regulations.
  • One wallet linked to several bank accounts or credit card accounts under the names of different individuals.

So, if you’re seeking to do business with a company dealing with cryptocurrencies, or are part of a law enforcement agency investigating certain individuals and entities, you should be wary of these warning signs.

As a solution, regulators worldwide must invest time in making effective rules pertaining to the crypto industry & promote the use of technology for detecting money laundering. At the same time, financial institutions must scout for technological opportunities to prevent crimes related to these new-age transaction methods.