Money laundering is a common practice among criminals and illicit businesses. The term money laundering typically refers to making the illegally acquired money appear as a legitimately earned money.
Most often, FIAT currency or real money is laundered, but according to the updates from cryptocurrency news today, a significant number of money laundering in cryptocurrency instances were also reported in recent times. In fact, over $761 million was laundered in cryptocurrency in the year 2018 alone.
Cryptocurrencies are digitally encrypted number sequences, which are used as digital tokens traded in P2P or peer-to-peer networks. What makes them secure is the fact that every transaction is recorded on public ledgers or blockchain networks.
Blockchain technology or network basically encodes the complete transaction history of every cryptocurrency. While this makes them highly tamper-proof, cryptocurrencies are decentralized, meaning they do not have a central authority; this makes them impervious to government regulations and jurisdiction limitations.
Although these reasons popularize cryptocurrencies, they also make them vulnerable to money laundering. So, how does money laundering in cryptocurrency work? Criminals or illegal businesses create accounts with Bitcoin and cryptocurrency exchanges, which specifically exchange FIAT currency for cryptocurrencies.
Money Laundering Cryptocurrency
Money laundering in cryptocurrency primarily involves transferring the illegal money into the cryptocurrency networks. Launderers typically make use of mixers, tumblers, and chain hopping collectively, referred to as a cross-currency process.
The use of Tumblers and mixers obscures the origin of the illicit money in question; it also makes it easy for integrating it into legitimate money. Exchanging cryptocurrency for real money is possible; thus, once the mix up is efficiently achieved, the launderer can claim the funds while showcasing it as legally acquired currency.
Common Money Laundering Practices Using Cryptocurrency
Tracing the origin of cryptocurrencies is possible because of blockchain technology. However, obfuscating the path of origin makes it complicated to trace, but not impossible. Nevertheless, it is time-consuming, and criminals make use of this vulnerability to launder money using cryptocurrency.
The following are some of the common means of money laundering using cryptocurrencies;
Exchanging one cryptocurrency for another or for FIAT currency and vice versa is a common scenario referred to as cryptocurrency exchange. While most of the cryptocurrency exchanges are regulated and safe, you can also find some of the unregulated exchanges that do not comply with AML (Anti-money laundering) best practices.
Unregulated exchanges enable repeated exchanges that would gradually obscure the laundered money’s origin, after which, criminals or illegal businesses can withdraw it as legally acquired cryptocurrency.
Decentralized peer-to-peer (P2P) networks
P2P networks support sending and receiving of cryptocurrencies from one party to another. Criminals exploit unsuspecting third parties to send funds in decentralized P2P networks by transferring the cryptocurrency to countries that do not comply with AML regulations. In fact, decentralized P2P networks also have scope for converting cryptocurrency into FIAT currency.
Crypto ATMs and prepaid debit cards
Cryptocurrency ATMs enable you to purchase cryptocurrencies like Bitcoins using credit or debit cards. Certain crypto ATMs also enable you to purchase cryptos by depositing cash, and hence, facilitating money laundering. Apart from this, it is also possible to load cryptos into prepaid debit cards, which can then be used for illegal activities.
Gambling and gaming sites
Gambling and gaming sites are one of the easiest means of money laundering in cryptocurrency; it is also the riskiest method. While this may be true, legal sites make it difficult for criminals to practice money laundering. However, there are also unregulated websites facilitating money laundering.
Anti-money laundering measures
Anti-money laundering initiatives like KYC (Know Your Customer) regulations must prevent the misuse of cryptocurrencies for money laundering. Such measures revolve around centralizing the cryptocurrency while making them less anonymous. Nevertheless, it enhances transparency, discouraging money laundering practices using cryptocurrency.
Criminals are looking for novel money laundering practices like using cryptocurrency. Implementing regulated AML measures alongside incorporating KYC norms is thus crucial.