Thanks to the unique features of cryptocurrency, dishonest users have a real opportunity to legalize any income for various purposes. Virtual currencies are anonymous, and some of their variants are specifically designed to conduct transactions, the nuances of which are hidden from regulatory authorities. Despite the availability of such digital money, money launderers are more likely to use Bitcoin and Ethereum.

Many organizations also strive to pay minimal taxes and receive greater profits, so they actively work with. Moreover, the riskiness of such actions, the management of such financial institutions is fully aware of the dangers and works, accepting venture conditions.

Of course, these anonymous operations have a very negative impact on society and create the threat of scaling up criminal activity. Because of this, states do not legalize cryptocurrency. Special services are fighting money laundering through digital coins.

Let us analyze in more detail the negativism of this trend, consider its significant nuances and analyze the key measures to combat this phenomenon.

Features of legalization of income through cryptocurrencies

Today, there is an obvious rise in serious tensions arising at the intersections of the laws of different countries. This is most clearly observed between states fighting corruption, money laundering obtained in all sorts of ways (especially criminal), and republics trying to popularize.

Important! Most often, the anonymity of cryptocoins is used by criminals of various stripes and hackers. For large shadow transactions, specialized virtual currencies are mainly used, the developers of which have specially optimized the possibility of maximum anonymous use. These are mainly DASH, verge, zencash, monero, PIVX, NAV coin, zcoin and komodo!

To combat the secret circulation of criminal funds, one effective method is most often used, called “know everything about clients”. It involves strict compliance with the requirement that is mandatory for any financial institutions working with transactions or currency conversions. The principle here is simple - each participant in any monetary transaction must provide personal data confirmed by documents. The information is stored and, upon receipt of a request, provided to specialized services. This system effectively monitors financial flows and quickly detects an attempt to launder hidden income.

Despite the simplicity and effectiveness of this technique, new cryptocurrencies appearing on the market significantly complicate the work of authorities trying to minimize the amount of money laundering. Specific cryptocoins reliably mix information about transactions, and innovative encryption schemes do not allow information about conversions and transfers to be obtained. Anonymity also interferes with everything.

It turns out that now attackers who do not make stupid mistakes are the winners in the battle with law enforcement agencies and special services. They fearlessly use digital money to launder funds. People who do not want to pay taxes to the state treasury also skillfully use virtual currencies, virtually without risk to their freedom.

Combating Cryptocurrency Money Laundering

Of course, all states are interested in suppressing any legalization of criminal and hidden income. For this purpose, some specific programs and comprehensive schemes are being undertaken. In addition to the method of preventing money laundering noted a little earlier, the KYC procedure is being introduced everywhere. In other words, this is mandatory identity verification on projects where operations are carried out with.

First of all, you need to disclose personal data when registering an account on most multifunctional services, that is, on cryptocurrency exchanges. In order to fully work on such trading platforms, users must provide photographs and scanned copies of these documents. These are exchanges – Kraken, HitBTC, Poloniex, Bitfinex, etc.

Methodology KYC involves the disclosure of personal information of clients at the request of interested authorities. So it is not difficult to trace the actions of the person of interest, his earnings and turnover of funds.

This procedure is good, however, not all projects introduce it. Many crypto wallets, and some cryptocurrency exchanges, deliberately discourage the use of such “surveillance” of clients in order to make more profit from commission fees. As a result, personal identification is impossible and criminal money is very simply “cleared” of a criminal past.

To improve the system for controlling the flow of fiat money and cryptocurrencies, many new, effective measures will soon be taken. The most interesting mechanisms are:

• blocking the ability to transfer virtual funds to cryptocurrency wallets from storage facilities that do not support the KYC procedure;
• mandatory full identity verification when opening accounts on cryptocurrency exchanges, creating wallets for cryptocoins and registering accounts in online exchangers. Otherwise, the service is forcibly blocked.

Relevant! The introduction of these measures will improve the ability to monitor money laundering activities and help to disrupt criminal activities in a timely manner. It is likely that the governments of countries, after strengthening control over cryptocurrency turnover, will radically reconsider the status of digital money!

Conclusion

Modern technology allows us to effectively combat the laundering of illegal and criminal money. This is hampered by the ambiguous attitude towards cryptocurrencies among the governments of different countries, as well as the reluctance of many virtual money developers to destroy one of the most important qualities of electronic coins - anonymity.

Experts believe that the managers of cryptocurrency projects will have to agree to these conditions and requirements. As a result of these changes, it will become impossible to launder money using cryptocurrencies.

If this scenario begins to progress, the anonymity of payment transactions will practically disappear. This will significantly weaken the interest of investors and ordinary users in cryptocoins. The cost of transactions using digital money will increase.

The fast and anonymous transactions offered by cryptocurrencies have attracted the interest of cybercriminals. After all, digital tokens are much more practical for money laundering than cash. Last year and this year alone, over $1.2 billion was “whitewashed” through cryptocurrencies. In this regard, major world economies have finally decided to start fighting the “crypto laundromat”.

Al Capone was the first to coin the concept of money laundering. He used laundries to mix the clean and illegal money he received from selling alcohol, gambling and prostitution.

The world has changed a lot since then, and so have the methods of money laundering. The emergence of cryptocurrencies played a special role in this. Attackers quickly mastered new tools.

So, they surprised the world with their transparency. Anyone can track the transaction history of a third party. To do this, it is enough to know only the crypto wallet address. But to launder money, criminals have learned to bypass this protection.

How to launder

According to the FBI, more than $1.2 billion was laundered through cryptocurrencies in 2017 and this year. This is a very approximate figure, because no one can give exact data. Here you can add the amount of cryptocurrencies stolen from user wallets or exchanges.

An American company specializing in cybersecurity in the field of blockchain, CipherTrace, has studied in detail the process of “whitening” money through cryptocurrencies and identified the main stages of the scheme.

The first stage is layering. In traditional finance, it involves the purchase of expensive assets with “dirty” money. For example, real estate. This asset is then resold several times, making it difficult to determine the original buyer.

In the crypto world, this stage includes the purchase of cryptocurrencies. Further, with the help of various exchanges and special mixing services, the original coins are split and converted into other cryptocurrencies. At this point, the money can pass through hundreds of addresses, making it difficult to trace the original owner.

Moreover, there are a lot of mixer services. They are freely available and, apparently, no one is going to interfere with their work. For example, one of the most famous resources, BestMixer.io, has been around for quite a long time.

The operating principle of such services is simple. They take cryptocurrency from different clients, mix it, and the result is a “hodgepodge” that does not allow tracking the owner of the money. Typically, mixers require 1% to 3% of the transaction amount as a fee for their services.

According to CipherTrace, the problem is aggravated by the fact that mixers are actively using large advertising platforms on the Internet, and are attracting more and more new customers.

Cleaning games

The crypto-gaming industry is also actively involved in money laundering. Attackers simply deposit cryptocurrency into such resources, make small bets and withdraw them back. Sometimes, the whole process is limited to only two components: deposit and withdrawal of money.

This simple method allows you to “break the trail”, and gambling sites act as ordinary mixers. Moreover, most crypto casinos do not require clients to undergo a KYC (Know Your Customer) check.

Problem with deadlines

Discussion of the problem of money laundering through cryptocurrencies at the global level has begun recently. became the first country to propose resolving this issue between the largest countries.

At the beginning of spring of this year, representatives of Japan demanded to discuss at the March

G20 meeting on possible steps to combat “dirty cryptocurrencies”. Authorities in other countries have heeded the call and tasked the Financial Action Task Force (FATF), an intergovernmental body that fights money laundering, with developing concrete measures for the next G20 meeting in July.

However, FATF did not manage to complete the task before the deadline and at the July meeting it was postponed to October 2018. This is when the organization should articulate how existing anti-money laundering practices can be applied to cryptocurrencies.

Real cases

Understanding of how to combat money laundering through cryptocurrencies is also lacking at the local level. There are practically no serious fines or criminal cases. In fact, there have been only a few precedents recently and all of them are related to exchanges.

For example, in March 2018, the Japanese financial regulator punished six local crypto exchanges. The reason was the non-compliance of trading platforms with anti-money laundering (AML) rules.

True, everything ended “amicably”. The exchanges agreed to strengthen their systems and avoided any monetary penalties.

Another example is South Korea. At the beginning of this year, the country’s financial regulator tightened regulatory rules and forced crypto exchanges to carefully study customer transactions.

If exchanges notice large transactions, they must report it to the authorities. The latter themselves will conduct an investigation into the origin of this money.

The innovation did not work for a long time, and by July the authorities relaxed the restrictions.

Is it even possible

The slowness of the G20 in general, and individual countries in particular, shows that the authorities simply do not yet know how to combat money laundering through cryptocurrencies. Moreover, governments do not have effective tools for this.

10Guards Operations Director Vitaly Yakushev is confident that even if the G20 comes up with something, it will most likely be regulatory restrictions, because it is still technically impossible to limit the laundering process.

“They have only one point of control - the fiat-cryptocurrency interface. That is, they will try to regulate through exchanges,” Yakushev is sure.

The largest and most famous exchanges have long introduced KYC and AML rules into their work and require clients to verify their identity. But what the exchanges should do if money comes to them after the “mixers” is unknown.

The question also remains open about the hundreds of crypto exchanges that operate “in the dark.” It is unlikely that countries at the global level will be able to block their work. Here it is worth recalling the experience of China, which closed all crypto exchanges on its territory. True, the Chinese have been trading cryptocurrency and continue to do so.

Obsolete

It is possible that at the global level, authorities are unable to cope with money laundering through cryptocurrencies due to the fact that their approach is fundamentally flawed.

And coins appeared much later than AML and KYC rules. Therefore, the authorities should think about more technological methods of struggle rather than “nightmare” cryptocurrency exchanges with outdated rules.

In the modern world, laundering large sums of money is becoming increasingly difficult. It is unlikely that you will be able to deposit $1 in a bank without attracting attention, while at the same time, buying precious metals will be marred by the inability to sell them at their true value. For many less knowledgeable market participants, Bitcoin has become a symbol of money laundering. However, more involved crypto enthusiasts are confident that due to the transparency of operations and relatively low liquidity, Bitcoin will easily give the palm to the dollar in matters of money laundering.

As co-founder and CEO of the BitMEX exchange Arthur Hayes argues in his latest report, Bitcoin is far from the most preferable option for laundering illegally obtained funds.

Instead of cryptocurrency, many attackers prefer to use real estate.

States are seeking to attract as much capital as possible to their jurisdictions. Many of them are stopped by the fact that dirty money can then be used to finance terrorism and the growth of drug cartels. However, there are also those countries that have become centers for money laundering.

The two most significant markets in this regard are Hong Kong, where Chinese money is laundered, and the United States.

Although China has made significant strides over the past 30 years, the Chinese public has no illusions about its government. Thus, any resident who crosses the path of the authorities may find himself poor and unclaimed in his country. In order to protect their money, Chinese residents turn to the real estate market in Hong Kong as a kind of risk hedging tool.

America, in turn, wants to know where the assets of its residents are located. This idea appealed to many countries, including Hong Kong. This is how the Common Financial Reporting Standard (CRS) appeared. According to the regulations, CRS participants must share financial information about asset owners with each other. However, as a member of the CRS, Hong Kong has refused to include real estate as a reportable asset. Also interesting is the fact that the United States simply refused to ratify this agreement. In other words, the United States is not obliged to provide information about the owners of assets in the country, which, of course, leads to the fact that money is often laundered there.

A special feature of the American real estate market is that in order to purchase property for cash below a certain amount, neither the buyer's identification data nor other reputational checks of companies or individuals are required.

In some places, such as Manhattan, this threshold can reach $3 million, and the problem was acknowledged last year by the US Treasury's Financial Crimes Enforcement Network (FinCEN), calling real estate an outright "money laundering machine."

Now let's look at the situation with Bitcoin. If desired, money can be laundered in two ways: opening an account on an exchange or using the services of dealers on an over-the-counter (OTC) platform.

Let's say a criminal wants to launder $1 million. Any exchange capable of handling this amount of liquidity will need to have close ties to financial institutions in the banking sector, which in turn will require all accounts to be thoroughly vetted to ensure compliance with anti-money laundering regulations. money and customer identification. If law enforcement agencies become interested in such an operation and request information, the exchange will be required to provide client data. An alternative option is to use the services of a dealer, but those who deal with large liquidity must also maintain banking connections and, accordingly, comply with KYC / AML requirements.

But let's be realistic, it is possible to find OTC dealers who are not too picky. They will be ready to turn a blind eye to KYC/AML procedures, but will prefer to work exclusively with cash and will require a considerable commission - in some cases it can reach 20%.

Although there are opportunities to launder funds using cryptocurrencies, the game is often not worth the trouble when the real estate market provides much more opportunity and certainty in this matter.

Financial crimes committed using cryptocurrencies are increasingly discussed in the news. European politicians are working to improve legislation taking into account the emergence of new technologies; in Russia (Bitcoin), the issue of money laundering through cryptocurrencies is in every second study.

Bitcoin and other digital assets do seem like a convenient tool to whitewash income or hide money from the state, but market size, fees and technological underdevelopment make this process not the most attractive.

If you want to launder money through cryptocurrencies, the most obvious and safe, but time-consuming way is to start buying bitcoins on the open market. Small transactions, up to 15 thousand rubles, do not require personal identification; transactions up to 500 thousand can be carried out through cash-in ATM. So, in small portions, through numerous exchangers or LocalBitcoins, you can start buying large amounts.

On the one hand, running to an ATM and throwing money into an unknown people’s account in the hope of getting bitcoins is a tedious task. On the other hand, if you do not turn the process into a mechanized conveyor, the chance of being caught is minimal. Consider the volatility of the exchange rate, fees and the effort that will have to be spent to complete such a number of transactions. For example, to turn 500 thousand dollars in cash into bitcoins, you will have to run to the ATM 300-400 times.

Katja El Sol Cemazar / Shutterstock.com

Another way is OTC - over-the-counter exchange of large amounts by individuals. Advertisements for buying or selling bitcoins can be found not only on any social network, but also on the entrance door. Moscow City is teeming with cryptocurrency scammers. They look different: from decent offices with cashiers and money-counting machines to bank premises with complete confidentiality and armed guards.

It would seem that the process has been established - but given the legislative uncertainty, there is no insurance here. The number of criminal cases related to the taking of money from those wishing to exchange cryptocurrency is growing and their prospects are clear: the chances of finding people whom the would-be buyer has trusted are minimal. The human factor still plays a big role in this technological world. Be careful.

Bitcoin is a pseudo-anonymous cryptocurrency. Anyone can look into the blockchain and see all the transactions. If instead of a person you point a machine at the Bitcoin blockchain, you can come to interesting conclusions. Let's add to this the existing volume of data that the Network collects about us every minute - and you can not only trace the path of money, but also compare it with a real person.

This is precisely the principle on which the legendary Palantir works, and Rosfinmonitoring wants to acquire exactly a similar system. Any surveillance and its consequences are unpleasant, but thanks to technology, there is a solution.

Advertisements for buying/selling bitcoins often require or suggest that the coins be clean. The only way to get one is from miners. It is these bitcoins that are supposed to be used for money laundering. They appeared out of nowhere, were received for cash and sent to another state. This all happens through anonymous wallets, cold storage, and other ways to securely transfer cryptocurrency.

If it is impossible to purchase “clean” Bitcoin for one reason or another, there are many services that offer to “clean” your assets. The easiest way to launder Bitcoin is to cover your tracks. For this, there are special services - “mixers” that mix transactions. Various operations take place with your coins; at the entrance you receive a similar amount, but with different bitcoins. Naturally, the services do not work for free and retain a commission, and there is a risk everywhere. As elsewhere in the illegal field, there is no responsibility.

It seems that, under pressure from regulators, almost every service requires going through the KYC - Know Your Customer procedure. Sometimes a passport is enough, but the process becomes more complicated. Many people ask for a selfie with a document, many also ask for a second document - for example, an apartment bill confirming your place of residence.

IDNow.io

Considering that someone else’s passport and documents can be easily found on the Internet, this procedure can be bypassed on many sites. This leads to complex decisions. For example, during the identification process through the IDNow application, you connect with a live operator who asks you to show your documents and conducts a full dialogue with you. The procedure is no different from offline.

In practice, cryptocurrencies still leave islands of freedom, which are useless to fight - there are many unregulated exchanges, without any identification procedures. True, there are traditional problems here too - the risk is high, and liquidity is not always good. If $1 million passes unnoticed on Binance, on a small exchange it could take days to sell assets.

No matter how many ways there are to launder money through cryptocurrencies, today this is not the most popular tool for everyone. The share of “black” money in cryptocurrencies is small; today the market is divided by traders, large investors and miners. Even the drug business accounts for less than 5%. For cryptocurrencies to become an attractive way to launder money, the market must grow and alternative instruments, such as anonymous cryptocurrencies, must be battle-tested and gain liquidity that is attractive to those who care about hiding their money from the omnipresent gaze of the state. In any case, it is worth remembering: during washing, a pair of socks may disappear, and a black T-shirt that accidentally gets into the drum can stain all your clothes.

Hello, dear blog guests, today we will talk about money laundering through cryptocurrencies, and also consider the key features of this phenomenon.

Relatively recently, one of the Israeli courts decided that local credit institutions may not cooperate with organizations that work with various types of digital money. This court decision primarily concerns companies such as Bitcoin. The Israeli court argued its decision by arguing that when working with such organizations, credit institutions take on too serious risks.

The main risk when credit institutions cooperate with organizations such as is the anonymity of digital money. Credit institutions perceive transfers of various types of digital money as a kind of “black box”, which is opaque to government agencies fighting the financing of terrorist organizations and money laundering. Organized crime takes advantage of this situation and practices money laundering through cryptocurrencies.

Money laundering through cryptocurrencies. Peculiarities

Currently, there is a serious increase in tension between the laws of various countries aimed at combating money laundering and the increasingly popular digital money.

The structural features of various digital money, such as Bitcoin, are used for their own purposes by hackers, as well as representatives of the criminal world.

Modern anti-money laundering techniques are based on the “know your customer” principle. According to this principle, financial organizations are required to collect information about all transfers performed, as well as about participants in payment transactions. This information is stored and provided to specialized authorities upon their request. The existing system greatly simplifies the fight against money laundering of ill-gotten gains.

The emergence and growing popularity of digital money has significantly complicated the work of authorities fighting money laundering. Since digital money transactions have a high level of anonymity, interested authorities cannot obtain information about participants in payment transactions. Thus, attackers can use cryptocurrency to launder money without risking their own freedom.

Anti-Money Laundering

To prevent money laundering through cryptocurrencies, in some states, in order to create a wallet to store coins, the user must undergo a “KYC” procedure, which involves the disclosure of personal data. Thanks to this procedure, interested authorities can easily identify the participants in a payment transaction, provided that the transactions were carried out between wallets created using the KYC procedure.

Unfortunately, not all countries require going through the KYC procedure to create a wallet. Representatives of the criminal world are taking advantage of this situation, using wallets created without going through the mentioned procedure to launder money. In this case, anti-money laundering authorities cannot identify participants in payment transactions.

Measures are currently being discussed to eliminate the possibility of using cryptocurrencies for money laundering. Among the main measures planned for the future, the following deserve special attention:

1. Mandatory completion of the KYC procedure when creating wallets. All users will be required to undergo this procedure, regardless of what state they live in.
2. Excluding the possibility of transferring coins to wallets that were created without going through the KYC procedure.

Taking these measures will eliminate the possibility of using cryptocurrency for laundering ill-gotten money. If this happens, the governments of many countries will change their attitude towards digital money to a positive one.

Conclusion

Blockchain technology allows you to successfully combat money laundering. The only problem is the lack of agreement between the governments of various states and the creators of various types of digital money.

Many experts agree that the creators of cryptocurrencies will have to make concessions. As a result, using cryptocurrency to launder ill-gotten gains will simply become impossible.

If the situation develops in accordance with expert forecasts, then we should expect a significant deterioration in the anonymity of payment transactions, as well as an increase in the cost of transactions.

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