One of the risks associated with cryptocurrencies, is theirpotential in being used as a tool for money laundering. Only an insignificant percentageof the market uses crypto for this purpose, yet there are growing concerns. Withtime, this has led to the creation of numerous regulatory frameworks meant todiscourage crypto use for illicit activities like this, including the appearanceof stricter AML/KYC policies. Recently, there has been growing media coverage for stories involvingcryptocurrencies tied to money laundering activities. In this analysis, we aregoing to cover two of these stories, alongside what certain countries are doingto stop the trend.
Japan Sees Tenfold Increase in Cryptocurrency-Based Money Laundering Activities
In a recent press statement, the National Police Agency of Japanexplained how a total of 7,000 crypto-tied money laundering cases were reportedto the agency in 2018. At first, this figure doesn’t seem significant grantedthe country’s population, yet, it’s considerably higher when compared to the669 cases reported between April – December 2017.
There’s no data on money laundering cases before April 2017, since that’s when digital currency exchanges were tasked with reporting any transactions that seemed suspicious. To determine which transactions to report to authorities, cryptocurrency exchange operators relied on a series of indicators, including, but not limited to: suspicious transaction activity, exchange trends, and overseas logins for Japan-based account. Additionally, several money launderers used different names and email addresses, yet uploaded the same ID photos.
It’s important to point out that despite these concerningnumbers, cryptocurrency-based money laundering is significantly lower whencompared to other methods. As such, a total of 417,465 cases of suspectedillegal financial activity were reported to the Japanese authorities in 2018. Alarge percentage of these transactions were processed by banks, credit cardcompanies and other financial institutions.
In an effort to control the increasing number of suspicioustransactions, Japan’s police authority will reportedly carry out testsinvolving artificial intelligence-based systems. Their purpose will be toanalyse data and recognize patterns that usually indicate money launderingactivity.
Venezuela’sGovernment-Backed Petro Cryptocurrency Used for Money Laundering and Fraud?
Since its debut back in 2018, Venezuela’s national cryptocurrencyhas been dealing with a wave of criticism and controversy. Before we cut to thechase, it’s important to note that Venezuela is dealing with political issues,alongside hyperinflation. Reports state that inflation has increased by 1million percent in the last year alone. The Petro coin was reportedly developedto stimulate the national economy, while also enabling Venezuela to bypass economicsanctions.
Now, a Spanish media outlet, has written an articledescribing why the Petro dollar is a fraud, and its involvement in moneylaundering activities. To put things better into perspective, suspicions arelinked to the source of the Petro funds. The official story is that PresidentMaduro managed to raise approximately $735 million, alongside $3.34 million, aspart of an Initial Coin Offering. Following a technical audit, the Casa de Cambio LatinAmerican Money, has stated that no actual funds were found. Additionally, theblockchain LEDGER of the Petro shows no record concerning the reported funds.
After this discovery, the Latin American exchange accused Venezuela’s government of fraud. The accusation is backed by the technical audit, alongside several irregularities that were found in the government report concerning the creation of the Petro. Further detail on how the money laundering activity was organized and financed is given in a report by Verifikado, the media outlet that broke the news.
National Efforts toCombat Crypto-Based Money Laundering
- Updatingregulatory frameworks and enforcing AML/KYC policies
Before combating crypto money laundering, governments firsthave to clarify what types of activities are classed as money laundering, undernational legislation.
While its cryptocurrency regulations are not ready, the Russian Supreme Court has officially classified the illicit use of digital currencies as a money laundering-related offense. The amendments were necessary to ensure compliance with the recommendations issued by the Financial Action Task Force on Money Laundering, known as the FATF. As an international task force, it issues recommendations to all countries that accept its jurisdiction. Several other nations are taking similar approaches. Most cryptocurrency exchanges have already implemented AML and Know-Your-Customer policies, in an effort to learn more about their users.
- Investingin data analysis experts and AI systems
Efficient transaction data analysis enables authorities to discover transaction patterns associated with illicit financial activities. Further investigation using data from KYC programs helps with identifying the persons involved. Authorities can then easily determine whether any illegal activities are taking place. However, many people are not happy with the effort, as some categorize it as a breach of personal information and privacy laws. Therefore, there’s an on-going ethics debate on how far authorities can go to track financial activity on money laundering suspicions.
Featured Image via BigStock.
