How Criminals Launder Money With Cryptocurrencies
Despite the latest developments regarding their price, cryptocurrencies will most likely keep capturing the attention of financial innovation for the next years. Their penetration is still rising among individuals who use it as a mean of exchange or as an investment, but another kind of user is also emerging as the use of cryptocurrencies gets popular with natural persons: businesses. Companies of all sizes can look forward to opportunities for new payment channels, hoping to increase their sales in some segments. However, cryptocurrencies are still widely used for a wide range of unlawful activities.
Breaking records, breaking laws
While the global cryptocurrency market is currently breaking all records, so is the related criminal activity. According to Chainalysis in 2021, these illicit activities set an all-time high reaching $14 billion, up 80% from 2020, when the figure totaled $7.8 billion
As increasingly stringent transaction regulations force criminals to increase their focus on cryptocurrencies and digital currencies, the predictions for 2022 are even direr. And the cases being brought to justice reveal a dark picture….
On 29 January 2021, Californian resident Hugo Mejia pleaded guilty to illegally operating a bitcoin-to-cash and cash-to-bitcoin money laundering operation. Mejia was reportedly well aware that at least a portion of the funds included the proceeds of illegal activities such as drug trafficking. But the resulting unlicensed profits of $13 million in bitcoin and cash proved too tempting.
Criminals and cryptocurrencies: How money laundering works
Mejia’s case is an example that perfectly illustrates the cryptocurrency underworld. But while justice was served in this case, many criminals are using the pseudonymous nature of cryptocurrency transactions to good effect, attempting to circumvent the law with increasingly imaginative solutions.
Among the multitude of creative criminal money laundering practices are:
Cryptocurrency regulations vary across jurisdictions and, in many cases, exchanges do not comply with the latest AML practices and do not effectively enforce identity checks. This allows criminals to exchange cryptocurrencies numerous times on different exchanges, ultimately resulting in a clean asset that can be transferred to an e-wallet.
Gambling and betting sites
Many online gambling and betting companies accept cryptocurrencies. Criminals can buy virtual tokens or credits and then cash out their winnings after a few transactions.
The use of international, decentralized peer-to-peer networks may involve unsuspecting third parties acting as vehicles to send funds. The final destination is usually a country with minimal or no AML regulations, where cryptocurrencies are sold in exchange for a local supply.
Tumblers send crypto from one e-wallet to another using the dark web. The crypto will pass through multiple addresses before ending up in an e-wallet on the dark web, from where it is freely transferred to an e-wallet on the real web and easily exchanged for cash.
As of January 2021, Statista reports a total of 13,746 Bitcoin ATMs worldwide. These allow customers to buy crypto with a debit card, credit card, or cash, and viceversa. Regulations on cryptocurrency ATMs vary from region to region and are generally poorly enforced, leading to criminal exploitation of loopholes.
Prepaid cards can be used to support criminal activities in many ways. They are often used to trade between various currencies and cryptocurrencies, and the resulting funds can be used to finance a wide variety of criminal activities.
No legitimate business wants to be used for or involved in illegal activities such as money laundering. To reveal and verify the identity of persons and registered organizations (i.e., companies) behind a transaction with cryptocurrencies can make the difference between a successful sale and taking part in a felony.
SignD Quantum will allow your B2B or B2C crypto-based sales to be performed with all the precautions of KYC and KYB. With Quantum you can make business with other companies in a safer way, while first verifying the identity of the company or organization with the one you are closing a deal, and then verifying the identity of the Ultimate Beneficial Owners (UBO´s) individually as persons. You can even take it a step further and back-up important sales with a contract signed online with a binding Qualified Electronic Signature, even when the means of exchange are specified in cryptocurrencies. Get it all done with SignD Quantum and go for those new sales opportunities in a safer way!