Technological development has made it easier for criminals to dispose of their wrongly acquired funds. One such technology is cryptocurrency. It is a new age technology, which is a digital medium that keeps records of coin ownership of individuals. In a ledger which is a computer database. This ledger uses cryptography to safeguard these records. It prevents the making of additional coins and also verifies the transfer of ownership of existing coins. Cryptocurrency is no doubt very productive. Individuals and institutions make use of this technology which gives them quicker access to financial services. Such access is also very cost-effective. However, there have been concerns regarding the rise of money laundering cases due to the use of cryptocurrency.
This was also pointed out at the G20 Summit of 2019 in Japan wherein it was said by one of the speakers- “While crypto-assets do not pose a threat to global financial stability at this point, we remain vigilant to risks, including those related to consumer and investor protection, anti-money laundering (AML) and countering the financing of terrorism.”
According to studies conducted by Crypto analysts, money laundering with cryptocurrencies is very risky and complicated. They claim that digital currency transactions are more transparent. But it has been often argued that on a small scale, money laundering is conducted through cryptocurrencies.
To hide the wrongful source of money, criminals use a number of processes that involve cryptocurrency. Cash-based money laundering using cryptocurrency involves three stages. The first stage is placement. Illegal money is brought into the system through intermediaries such as financial institutions, casinos. A kind of cryptocurrency may be exchanged for crypto or cash. Online crypto exchanges may be used for this. The second stage is layering where criminals conceal such illicit sources by way of structured transactions. It is difficult to trail down, then source of illegal funds. Using crypto exchanges, criminals can transform one cryptocurrency into another using such crypto exchanges. Crypto holdings can also be moved to another country. The third stage is integration where illicit money is placed back into the system in a legal manner.
Crypto users use a method called crypto mixing – a method which is also commonly referred to as using “tumblers”. Here, they conduct transactions by mixing their cryptos with cryptos of other users. This involves taking crypto from a customer, sending them through different addresses and then mixing them, which will in turn result in clean carpets.
Criminals also use peer-to-peer crypto networks, which are decentralized networks through which funds are sent to a different destination in a different country where the Anti-Money Laundering regulations are not as strict. There are also a few gambling websites that accept payments in the form of cryptocurrencies.
There are also certain Crypto ATMs, where people use debit and credit cards to purchase bitcoins or trade cryptocurrencies for cash.
To act against the money laundering threats, regulators worldwide have come up with rules and regulations for companies using cryptocurrencies. In June 2019, the Financial Action Task Force (FATF), notified guidance relating to virtual assets. As per the Monitory Authority of Singapore (MAS)’s Payment Services Act, businesses dealing with crypto are mandated to obtain license in accordance with AML regulations. Meanwhile, the European Union has published the Fifth Anti-Money Laundering Directive (AMLD5). In the United States, Bank Secrecy Act regulates Money Services Businesses (MSBs). Domestically, the Cryptocurrency Bill, 2021 in India aims to lay down a framework for an ‘official digital currency’ regulated by the RBI.
Originally posted on www.kpalegal.com on 22nd July 2021
