Cryptocurrencies have been around for quite some time. Bitcoin, Ethereum, and Litecoin are all well-known cryptocurrencies. As technology advances, financial criminals keep up the pace to find new methods to abuse it through money laundering.
While criminals adapt quickly to technological improvements in financial transactions such as bitcoin, financial institutions and regulators must be more aggressive in combating abuse. Regulators throughout the globe should devote effort to developing effective crypto-related legislation and promoting the use of technology to identify criminality.
According to recent surveys, the use of cryptocurrency for money laundering is fast gaining acceptability throughout the world. Let's look at some of the recently reported cases:
The United States of America – USA
The United States has sentenced a bitcoin fraudster to prison for money laundering and securities fraud. The US Department of Justice sentenced a Swedish man to 15 years in prison for securities fraud, wire fraud, as well as money laundering charges related to an investment scam that defrauded thousands of people out of over US$16 million.
United Kingdom – UK
The United Kingdom announces its largest-ever seizure of cryptocurrency assets in a money-laundering probe. While investigating money laundering offences, specialist officers from the London Metropolitan Police Economic Crime Command confiscated crypto assets worth £114 million, making it the country's largest cryptocurrency seizure.
China
Over 1,100 individuals have been arrested in China as part of a crackdown on cryptocurrency money laundering. In June, China's Ministry of Public Security announced the arrest of more than 1,100 people accused of utilising cryptocurrencies to launder unlawful gains through telephone and Internet frauds.
The police apprehended more than 170 money laundering organizations that paid their criminal customers a 1.5 percent to 5% fee to convert unlawful revenues into virtual currency via crypto exchanges.
Hongkong
Hong Kong uncovers a HK$1.2 billion bitcoin money laundering conspiracy. On July 15, Hong Kong Customs announced the arrest of four persons in connection with an alleged money-laundering scheme involving HK$1.2 billion in Tether, the stablecoin. The man created many local bank accounts and transacted using a bitcoin exchange. From February 2020 to May 2021, the suspected monies were transferred through bank transfers and virtual currency.
Approximately HK$880 million of the total amounts was derived through bitcoin trading in approximately 40 e-wallets.
Bitcoin is a cryptocurrency that is both new and popular at the same time. Bitcoin money laundering is also a crime that has been committed through crypto exchanges. Crypto exchanges are fast becoming essential in financial systems, and most individuals have been fascinated about and explored these marketplaces outside of financial systems.
Crypto exchanges are vulnerable to fraud, their operations are unclear, and confusion is growing as these businesses quickly advance. When we consider the sources of AML crypto risks in crypto exchanges, we must consider the risks posed by technology as well as certain fraud threats.
As cryptocurrencies are so widespread, organisations that provide services to crypto exchanges face AML concerns. Criminals profit enormously from the industry's ambiguities due to the absence of control and regulation by regulators.
The amount of money laundered through the crypto exchange is estimated to be over $ 2.8 billion, according to the research. The bulk of these figures necessitates familiarity with and comprehension of AML red flags for crypto exchanges. The Financial Action Task Force (FATF) released a paper that attempts to assist cryptocurrency wallet and exchange organisations in developing anti-money laundering (AML) systems. The following are the primary indicators addressed in the report:
This collection of indicators capitalises on the underlying technological characteristics and weaknesses that underpin VAs. The following technology elements boost anonymity and make it more difficult to detect illicit conduct. These characteristics make VAs appealing to criminals seeking to conceal or hide their assets.
Money launderers take advantage of AML flaws and transfer unlawful monies to VASPs in jurisdictions that lack or have little AML / CFT legislation for Virtual Assets (VA) and Virtual Asset Service Providers (VASP).
Transaction size and frequency are also major red signals for crypto exchanges. As an example, Structure transfers or clearing transactions at amounts less than the record-keeping or reporting criteria, like how cash transactions are structured. Making a series of high-value transactions in a short period of time, such as 24 hours. Cryptocurrency exchanges are used by terrorists to purchase weapons.
Transaction patterns are another warning flag in cryptocurrency exchanges. Several transactions with no business purpose, cryptocurrency accounts that don't match the customer profile, frequent large-value crypto transfers from multiple persons to one account in a short period of time, and small fiat currency withdrawals from unrelated accounts are all red flags.
Regulators are aware of the money laundering risks in cryptocurrency exchanges, and as the market grows, regulators tighten their restrictions. Another organization working on this is the Financial Action Task Force (FATF).
FATF member countries shall adopt the appropriate FATF Recommendations by virtual asset service providers (VASP). All VASPs, whether they are actual people or not, must be licensed and registered.
Countries should impose all necessary measures to identify natural or legal people engaged in VASP operations. A responsible authority should supervise and monitor VASP. These audits should be conducted in conjunction with risk-based monitoring.