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The Evolution & Revolution of Financial Crime – How Criminals Launder Money Through Cryptocurrencies

Cryptocurrencies are THE hot topic. Yes, the market is unpredictable, but it also has immense scope: a scope that’s driving an unprecedented increase, with Bitcoin rapidly regaining momentum and Ethereum breaking its best-ever value every second day! But along with this immense possibility comes a warning: there’s a very dark side indeed to the market, and anyone dealing with cryptocurrency must beware.

Smashing Records, Breaking Laws

While the global crypto market is currently breaking all records (Market Cap $1.37T, with a $700 billion increase in trading over the past 3 weeks!), so too is the related criminal activity. In 2019 alone, according to the latest figures released by Chainalysis, more than $2.8 billion in Bitcoin was directly involved in criminal activity – a figure three times higher than that of the previous year.

As ever-stricter transaction regulations force criminals to increase their focus on cryptos and digital currencies, the predictions for 2021 are even more dire. And those cases which are brought to justice are revealing a very dark picture indeed…

On January 29, 2021, Californian resident Hugo Mejia pled guilty to illegally operating a bitcoin to cash and cash to bitcoin money laundering operation. Mejia, it transpires, was well aware that at least some of the funds included proceeds of illegal activities such as drug trafficking. But the unlicensed profits resulting from $13 million in Bitcoin and cash proved too tempting.

Criminals & Cryptos: How Money-Laundering  Works

Mejia’s case is an example that perfectly illustrates the seedy underbelly of cryptocurrency. But while, in this case, justice was served, many criminals are utilising the pseudonymous nature of crypto transactions to good effect, attempting to beat the law with increasingly imaginative solutions.

Amongst the multitudes of creative criminal money-laundering practises are:

  • Unregulated exchanges

Cryptocurrency regulations vary between jurisdictions and, in many cases, exchanges are not compliant with the latest AML practices and fail to effectively run identity checks. This allows criminals to trade cryptocurrencies numerous times across different markets, resulting eventually in a clean asset that can be transferred to an e-wallet.

  • Gambling and gaming sites

Many online gaming and gambling firms accept cryptocurrency. Criminals can buy virtual chips or credit, and then cash out their takings after a small number of transactions.

  • Peer-to-peer networks

The use of international decentralised peer-to-peer networks can involve unsuspecting third parties who work as vehicles to send funds. The final destination is usually a country with minimum to non-existent AML regulations in which the cryptos are sold for local tender.

  • Tumblers

Tumblers send crypto from one e-wallet to another using the dark web. The crypto will cycle through multiple addresses before ending up in an e-wallet in the dark web from whence it’s freely transferred to an e-wallet on the actual web and easily traded for cash.

  • Cryptocurrency ATMs

As of January 2021, Statista reports a total of 13,746 Bitcoin ATMs worldwide. These allow clients to buy crypto with a debit card, credit card, or cash – and vice versa. Regulations on crypto ATMs vary from region to region and are generally poorly enforced, leading to criminal exploitation of loopholes.

  • Prepaid cards

Prepaid cards can be used to support criminal activity in any number of ways. Frequently, they’re used to trade between various currencies and cryptos, and the resulting funds can be used to finance a wide variety of criminal activities.

At iSPIRAL we understand the complexity of the crypto-market and the fact that each crypto has different trading rules and characteristics. That’s why we’ve developed the market-leading RegTek+ Platform, which fully protects against criminal activity.

RegTek+ automatically completes KYC tasks with the use of global databases, and includes AML Transaction Monitoring (a key element for any firm working in the crypto industry) software which flags suspicious patterns, reviews dubious transfers and transactions, and subsequently assigns a risk-level and scoring to those involved.

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