In today’s advanced world, the use of technology is becoming more sophisticated and complex. As the rise of blockchain technology facilitates the spread of cryptocurrencies, it enables users to transfer large sums of money quickly and anonymously. Technology has evolved, and so have the methods money launderers use to commit financial crimes. This has put regulators on high alert as they come up with different strategies and regulations to counter the occurrence of illicit activities.
How is Money Laundering Possible?
Cryptocurrencies come with an attractive quality of providing anonymity to crypto users. This grabs the interest of money launderers because they can easily transfer millions of dollars from their unlawful enterprises and convert them into legitimate holdings. Money laundering using paper currency requires opening bank accounts using your personal identifying information – and by maneuvering through the bank’s infrastructure, you transfer your illegal funds out of the financial system in order to cover the origins of it.
On the other hand, cryptocurrency users only require the addresses of their crypto wallets and don’t have to go through the scrutiny of transitional banks and centralized authority. Apart from this, there is no added paper trail for cryptocurrency users, and all transactions are secured using blockchain technology. Even though it comes with some level of regulatory standards, the speed of online transfers and anonymity that comes with cryptocurrency has the potential of being exploited by money launderers.
Evidence that Suggests Money Laundering Takes Place Using Cryptocurrency
Given the infrastructure and characteristics of cryptocurrency, it’s common to assume that money launderers use this financial model to transfer illegal funds without causing any red flags to alert the authorities. It turns out, the opposite of this is true.
Cryptocurrencies are used far less for money laundering as opposed to cash. There are studies conducted that report a significant decrease in crimes related to cryptocurrency in 2020 compared to 2019. Only 0.34% of total crypto transactions were carried out illegally in 2020, compared to 2.1% in 2019.
However, we must note that even though the rate of crypto-related crimes went down, during the same time the number of crypto-users increased threefold. The evidence proves that there is only a small proportion of crypto-users that are involved in money laundering, but these illicit activities are still significant enough for further investigation.
Money Laundering Using Crypto – How to Regulate it?
In a recently published report, in 2020, there were a total of only 270 blockchain addresses that were responsible for almost 55% of all money laundering activities using cryptocurrency.
Regardless of the percentage of crypto-users involved in crypto crimes, authorities and regulatory bodies are increasing their oversight. The Financial Crimes Enforcement Network (FinCEN) has proposed to instill the same regulations and reporting procedures, for anti-money laundering, on crypto platforms as they do for traditional financial institutions.
Any digital transaction which amounts to over $3,000 would be eligible for reporting. Entities facilitating these transactions will have to submit a report, keep transaction records, and maintain the identity of the customers and provide the data to FinCEN.
One of the leading principles of money laundering is to keep your transactions under the radar so the authorities don’t get alerted of any illicit activities. Cryptocurrency offers much more transparency compared to your traditional banks, making it counterintuitive for the needs of money launderers.
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