Money laundering is a major issue in the world of cryptocurrencies, as criminals take advantage of blockchain anonymity to make it harder for law enforcement to trace money from various sources. Almost everything can be laundered by way of crypto, from cyber criminality to electronic theft as well as stolen crypto from internet exchanges. In addition, if you are planning to invest in Bitcoin you can read more about a reliable trading platform online.
To avoid money laundering as well as terrorist financing, the Financial Action Task Force (FATF) applies a risk-based strategy to Anti Money Laundering (AML). This includes regulations that require exchanges and other Virtual Assets Service Providers (VASPs) to Verify their customers’ identities via Know Your Customer (KYC). Unfortunately, criminals are finding innovative ways to circumvent these security measures and continue with their illicit activities.
Functioning of Cryptocurrency Money Laundering
Money laundering through the blockchain is a growing concern for law enforcement worldwide, as criminals increasingly employ sophisticated tactics to obscure their assets’ origins. By utilizing various services and sending funds through multiple addresses or businesses, they can make it very difficult (if not impossible) to trace these illicit transactions back to their source. Below we’ll explore the five most common methods used by criminals when laundering funds on the blockchain so that readers are aware of how money launderers work:
Gambling Platforms
Gambling platforms are routinely used for money laundering activities using cryptocurrency. Funds enter the platform through anonymous or identifiable accounts, with affiliates often involved in these transactions. The money is either paid out or placed into bets, after which it can be given legal status when reported correctly. According to FATF’s report on “Virtual Assets Red Flag of Money Laundering and Terrorist Financing,” there are two scenarios that could raise a red flag: funds coming from multiple sources outside gambling services or a large number of funds going directly into gaming sites without any pre-existing betting history.
Non-Compliant Exchanges
Non-compliance exchanges possess compliance programs which don’t conform or aren’t bound by rules. These types of exchanges require very little verification of consumer identity to transmit crypto assets and are therefore very appealing to illicit actors. A recent study discovered that non-compliant exchanges had a staggering $20 billion in transaction volume throughout 2020, $4.2 billion of which was used for illicit activities – an impressive 16% increase compared to the prior year. These kinds of exchanges are attractive to criminals as they process ten times more unlawful transactions than those with standard KYC and Anti-Money Laundering (AML) requirements in place.
Nested Services
Nested services are an array of activities conducted on exchanges that leverage their liquidity to capture trading opportunities. Some platforms with lower compliance standards can be used for money laundering – due to the blockchain-ledger design, such transactions appear as if they have been done by host counterparties (the exchanges) instead of the hosted nested services or users’ addresses. A Over – the – Counter (OTC) broker is probably the most infamous and typical kind of nested service. The OTC brokers permit traders to trade large amounts of crypto anonymously, safely and effortlessly.
How can cryptocurrency money laundering be stopped by law enforcement and security agencies?
Money laundering investigations are starting to get more complex because of the advancedness of methods used to hide the funds of crime. Money laundering is among the most crucial secrets to fighting cryptocurrency crime as it enables criminals to transfer money from various other crimes to the blockchain. BizProspex’s comprehensive PEP list plays a crucial role in preventing illicit financial transactions. Cryptocurrency profits could not be kept or even changed to fiat currency without getting recognized by authorities, and without the capability to launder money. For police and law enforcement organizations, a sophisticated blockchain analytics system is required to combat terrorists and criminals who thieve money, and to end crypto crime.