Money Laundering Danger Associated with Cryptocurrencies

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Key Takeaways:

  • Cryptocurrencies are becoming the favored payment method for cybercriminals for a variety of reasons.
  • Difficulty in being traced, the absence of unified federal regulation, low transaction costs, the lack of financial intermediaries, and the simplicity with which they can be used.

Bitcoin was the first blockchain cryptocurrency to gain significant value. As a result, Bitcoin is becoming more widely accepted as a medium of exchange for products, services, and currency. Bitcoin transactions are recorded on a decentralised public ledger and validated with significant computational power.

While money laundering with fiat currencies required the criminal to open a bank account and go through all of the bank’s verification and identification procedures before attempting to move the unlawful monies across various bank accounts controlled by the criminal, detecting and tracing laundered cryptocurrencies remains a considerable challenge for law enforcement.

Cryptocurrency exchanges are a new tool for cybercriminals looking to launder money. There are fewer identification procedures required with crypto exchanges, and there is no centralised authority. To complete a transaction, all required is the sender’s and recipient’s wallet addresses. Any third-party middleman or banking authority does not supervise, flag, or evaluate such transfers.

Cyber thieves used to “cash-out” at one of the most popular cryptocurrency exchanges in the early days of the crypto age. However, as crypto laundering methods have grown in popularity, many crypto exchanges have tightened their anti-money laundering (“AML”) and know-your-customer (“KYC”) policies. As a result, cybercriminals have had to develop a new means to complete their crypto schemes.

Instead of using large exchanges, cybercriminals are increasingly turning to unlicensed exchanges, many of which are based in overseas countries with little or no AML/KYC regulations and no extradition treaties with the US.

Bitcoin transactions have a level of anonymity tied with them. Although not completely anonymous, these transactions are pseudonymous. This means that the public Bitcoin addresses used for transactions aren’t linked to specific people.

The transactions are recorded publicly on the blockchain, but only the person who made the transaction has access to the account and Bitcoin wallet.

As a result, federal agents will have difficulty attributing a specific Bitcoin transaction to a particular person or company. Detection, on the other hand, is not impossible.

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Crypto Laundering Warning Signs: 

Crypto laundering is a felony. Despite the shortage of federal guidance on the subject, many law enforcement organizations rely on existing statutes and traditional investigation tactics to find crypto laundering cases. The following are some crypto laundering warning signs:

  • Transferring cryptocurrency funds to wallets in unregulated or under-regulated jurisdictions
  • Several high-value transactions take place in a short amount of time
  • Bitcoin or other transactions with a total value that is just below the threshold for reporting requirements
  • Withdrawing cryptocurrency deposits as soon as possible
  • New accounts are funded with a sum that is removed immediately
  • Multiple cryptocurrency transactions on multiple accounts
  • One wallet linked to many credit card accounts in the names of different people, or one wallet linked to multiple bank accounts.

On January 1, 2021, Congress passed the Anti-Money Laundering Act (“AMLA”), which revised the Bank Secrecy Act (BSA) for the first time since 2001, to override President Trump’s veto of a Pentagon budget measure.

The AMLA, like other regulatory initiatives, is the result of previous legislative efforts to reform various aspects of the Bank Secrecy Act (“BSA”), including the Corporate Transparency Act of 2019, the Illicit CASH Act of 2020, and the STIFLE Act of 2020. Expanding coordination and sharing of information across administering agencies, examining agencies, law enforcement agencies, national security agencies, the intelligence community, and financial institutions is a critical goal of the AMLA.

The AMLA has several relevant provisions that seem to address flaws in the US strategy to anti-money laundering/counter-terrorist financing (“AML/CFT”), such as the lack of national corporation beneficial ownership reporting requirements. The absence of beneficial ownership reporting requirements at the national level has been challenged by the Financial Action Task Force (“FATF”), among others. The absence has been called a “major gap” and a “severe shortcoming” in the US AML system by the FATF. In addition, federal law enforcement and national security agencies have long sought accessibility to beneficial ownership information. AMLA also emphasises implementing risk-based programmes that are well-designed and incorporate technology.

Cryptocurrency Money Laundering has Increased by 30%

According to a survey by blockchain intelligence company Chainalysis, criminals laundered $8.6 billion (£6.4 billion) in bitcoin in 2021, up 30% from the previous year.

It claims that targeting critical services used by criminals to launder cryptocurrency might deal a “huge blow” to law enforcement.

According to the business, criminals will obtain a record $14 billion in cryptocurrencies in 2021.

The National Crime Agency (NCA) of the United Kingdom told the BBC that law enforcement responded.

Cryptocurrency wallets controlled by criminals such as ransomware attackers, malware operators, scammers, human traffickers, darknet market operators, and terrorist groups are tracked by Chainalysis, according to the company.

Chainalysis estimated the amount “laundered” by tracing cryptocurrency transactions from addresses linked to criminal activity.

“While billions of dollars worth of bitcoin flow from unlawful addresses every year, the vast majority of it ends up at a shockingly tiny collection of services, many of which appear purpose-built for money laundering,” according to the research.

“By interrupting these platforms, law enforcement can strike a massive blow against cryptocurrency-based crime and greatly restrict criminals’ ability to access their digital riches,” it continues.

The NCA’s head of the financial investigation, Gary Cathcart, said:

“While the great majority of bitcoin use and trade is for legal purposes, organised criminals have discovered the advantages that cryptocurrency offers. Parts of the cryptocurrency structure are being used to launder illegal funds, especially from drug trafficking. Cryptocurrencies are also being used as a payment mechanism by the growing threat of ransomware.”

“Law enforcement is reacting to criminal gangs’ adoption of bitcoin, and cryptocurrency seizures are on the rise. Legislative reforms are also being considered to aid in the reaction to the use of cryptocurrencies in illegal financial activities.”

According to Chainalysis, the total amount laundered in 2019 is less than the five-year high of $10.9 billion.

According to Europol, the usage of cryptocurrencies in money laundering schemes has been increasing, and many criminal networks used cryptocurrencies as a payment medium during the Covid-19 outbreak.

Only ransomware assaults where criminals are paid in cryptocurrencies are included in the Chainalysis numbers.

Money from offline crime, such as drug trafficking funds converted to cryptocurrencies to be laundered, is not covered, and the report warns that this could be a growing area.

It uses the example of a criminal gang that supplied drugs to street-level traffickers in northern England, who then sold them for cash.

Walmart Used to Launder Money

Ilya Lichtenstein, 34, and Heather Morgan, 31, were detained in Manhattan earlier this month on charges of laundering cryptocurrency related to the hacking.

To be clear, they have not been charged with any wrongdoing concerning the hack, and they have not been found guilty. The Justice Department was used to collect information regarding the case. The perpetrators of the initial hack have yet to be identified.

According to friends who spoke to the Wall Street Journal, the pair previously lived in the San Francisco Bay Area. The story also stated that Lichtenstein had completed Y Combinator, a well-known Silicon Valley entrepreneur training programme.

The Justice Department stated that “Lichtenstein and Morgan allegedly conspired to launder the proceeds of 119,754 bitcoin stolen from Bitfinex’s platform.”

The stolen bitcoin was sent to a digital wallet controlled by Lichtenstein due to the illicit activities. “Approximately 25,000 of those stolen bitcoins were transferred out of Lichtenstein’s wallet via a sophisticated money laundering method” over the last five years, according to the agency.

According to CNBC, the couple’s lawyer claimed in a filing that “the government’s money-laundering allegations are based on a series of circumstantial inferences and assumptions taken from a sophisticated web of intricate blockchain- and cryptocurrency-tracing assertions.”

Money laundering is a criminal offence in of itself, not to mention that Rakesh has cheated people with this crime. If he is apprehended, he will suffer severe consequences. We’ll use some real-life instances to demonstrate this.

In 2020, for example, EUROPOL conducted an operation involving 16 countries, resulting in which 20 QQAAZZ members were apprehended. QQAAZZ was a criminal network that attempted to launder tens of millions of euros on behalf of the world’s most notorious cybercriminals. Its members are now facing significant prison sentences thanks to law enforcement.

Money laundering with cryptocurrency is a severe problem that requires suitable safeguards to prevent dangers from materialising.

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Aadrika Sharma
Aadrika Sharma

I enjoy writing and try to learn new things every passing day!

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