Bitcoin is heavily used in Crypto Currency Laundering

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CA Mayur Joshi
CA Mayur Joshi
CA Mayur Joshi is a Forensic Accounting evangelist in India. He is the co-founder of Indiaforensic and is author of 7 books on forensic accounting, fraud investigations and money laundering.

CryptoCurrency laundering is an emerging challenge. But Indiaforensic recognized this in the year 2013. Indiaforensic published its report on virtual currencies. Liberty Reserve was the hot digital currency in those days. “Laundering in Cyber World – The Digital Currency Way” is the first research report in India to highlight money laundering in cryptocurrencies. Times of India covered the story on this report to underline the importance of this topic.

In the past decade, the financial world evolved with cryptocurrencies. Most of the countries accepted these currencies and some even allowed training in these currencies.

Certified Crypto Currency Laundering Expert

crypto currency laundering

With crypto assets finding their way into the global financial system, there is an urgent need for the financial crime community to step up its game; firstly to understand emerging financial crime threats and secondly to apply a risk-based approach to effectively manage that risk. The certified Crypto Currency Laundering Expert program meets these expectations. This course elaborates on various aspects of Bitcoin transactions and financial crimes. Certified Crypto Currency Laundering Expert also discusses the risk assessment for financial institutions. Further, the course elaborates about bitcoin mixing services and bitcoin privacy issues. Furthermore, how do money laundering and terrorist financing work? What compliance methods can help organizations to protect themselves against the potential risks of engaging in blockchain technology and crypto exchanges? These exchanges convert fiat currency to crypto currencies. Financial Institutions consider these transactions as high risk.

Today virtual currency is a haven for money launderers, tax cheats and high-tech pickpockets. Financial Services companies need to be alert to combat the crypto currency financial crimes. They should conduct due diligence on customers. Moreover, financial services companies dealing in digital currencies need to report suspicious transactions to local regulators.

Examples of Crypto Currency Financial Crimes

Let us now understand how money laundering takes place using crypto currencies. There is a predicate crime in every money laundering operation. Money is generated from illicit activities. In digital currency laundering cyber crimes and hacking are important predicate offenses.      

Failure of Cryptocurrency Exchanges

There was a hacking attack on largest bitcoin exchange in 2011. Mt. Gox failed in honoring customer payments, saying a bug in the underlying software code of bitcoin had allowed hackers to alter a one-time code in transactions. Moreover, the alteration meant bitcoin recipients could falsely claim they hadn’t been paid. Two other exchanges hit by the same problem, Bitstamp Ltd. of Slovenia and BTC-e of Bulgaria, resumed normal trading after working out a fix with software coders coordinated by the Bitcoin Foundation. However, Mt. Gox never reopened and filed for bankruptcy. The missing bitcoins represent 7% of the world’s supply. Mr. Karpelès has since said Mt. Gox has 127,000 customers and later found about 25% of the missing bitcoins in a file hosted online.

Bitcoin payment processor in Laundering

As the founder of BitInstant, a popular website that allowed users to buy and sell bitcoin, Mr. Shrem quickly rose to the top of the bitcoin community, amassing a net worth he has valued at $6 million. Until his arrest, he also was vice chairman of the Bitcoin Foundation, a trade organization that promotes the virtual currency with regulators, law enforcement and other groups. Online black-market site Silk Road used more than $1 million of bitcoin to anonymously purchase everything from narcotics to bogus passports.

Bit Coin based black market creator

Ross Ulbricht, is the creator of the Silk Road. This was Bitcoin-based black market for drugs. He was behind the bars but later was found not guilty of money laundering. However, the fact remains that the Silk Road was  underground market for the drugs. Moreover, the users of this site purchased the drugs using the bitcoins for anonymity. These incidences show the role of virtual currencies in financial world. Though carrying the currency may not be illegal but using it as the tool to convert the illegal cash into digital currency or helping the drug dealers may create the problem for the bitcoin advocates.

Virtual Currency Regulatory Landscape

However, this is not the end of the cryptocurrency financial crimes. It is necessary for the compliance officers to learn the new trends. Digital currency laundering certification adds significant value to the efforts of enterprise risk assessment. In the year 2020, Indian Apex court lifted the ban on cryptocurrencies. Later, a new bill was passed to ban the decentralized crypto currencies and to introduce the bitcoin like Sovereign coin. This will open the doors of opportunities for the investors. At the same time this will also create the flood of financial crimes. 

In order to counter increasing AML/CFT threats related to cryptocurrencies, regulators across the globe have come up with rules and recommendations for firms dealing in these currencies. While some regulators have included crypto exchanges and wallet companies under the purview of existing AML regulations, some have issued new regulations for them. In June 2019, global AML watchdog the Financial Action Task Force (FATF) published its guidance for virtual assets and virtual asset service providers (VASP).

Law enforcement agencies across the world are now waking up to this new challenge. As the crypto curency financial services evolve it poses bigger challenge before compliance world.

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