Money laundering activity is typically considered to be carried out through cash, however cryptocurrency has created a digital means in which large sums of funds can be transferred from one source to another with anonymity. Governments around the world are becoming increasingly aware of the loopholes surrounding cryptocurrencies and money laundering, and are finding ways to crack down on any illicit transactions through the virtual currency.
If you have been charged with or are being investigated for money laundering in relation to cryptocurrencies, our specialist team is here to assist you and offer advice while defending your case. Contact us today.
The process of money laundering through cryptocurrency exchanges
If money laundering takes place via cash (fiat) currencies, bank accounts must be set up to flow cash through the system, taking funds from illegitimate sources and placing them in and out of the financial system repeatedly to conceal their origins.
Cryptocurrency, on the other hand, is a modern medium for value exchange and represents a more attractive option to money launderers because of the speed with which funds can be transferred between users via exchanges. Exchanges only need the addresses of crypto wallets to take place, and can occur anywhere in the world as the entire system is decentralised.
Money laundering using cryptocurrency is also far more anonymous because bank accounts are not required to move funds. The anonymity of the cryptosystem can be exploited to create accounts that do not match up to personal documents, as well as create multiple exchange accounts that are sourced from the same IP address.
Money laundering and transactional behaviour
Unlike bank statements, there is no paper trail in cryptocurrency transactions. Instead, transaction history is cryptographically secure on a blockchain. There can, however, be a pattern of transactional behaviour that indicates money laundering is taking place through cryptocurrency platforms, such as:
- Multiple transactions in a small period of time,
- Transactions that are not in line with a user's actual wealth (money mules), and
- Trading that results in frequent losses or conversions from crypto to fiat currencies.
How is crypto-related money laundering monitored and detected?
As cryptocurrency continues to grow in popularity, regulators and governments have been taking more steps to tackle money laundering-related activities through crypto platforms.
As of 10 January 2020, existing crypto-asset businesses had to be compliant with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) and must be registered with the FCA by 9 January 2021. Any new crypto-asset businesses set up after 10 January 2020, must register with the FCA before carrying out any activity.
The EU also has its own anti-money laundering directives (AMLD), which state the rules for record-keeping by both consumers and crypto platforms. Similar to other financial institutions, cryptocurrency trading platforms must consider their approach to compliance.
General anti money-laundering measures include:
- Monitoring of transactions (when funds are transferred), and noting any suspicious activity
- Customer due diligence (verifying the identity of customers using ID documents or voice/fingerprint recognition)
- Monitoring customers who are on international sanctions lists
Using blockchain technology to tackle money laundering
As many cryptocurrencies run on a blockchain network, they are extremely volatile and very difficult to control. Many traders like to trade using cryptocurrencies because of the immutable ledger that a blockchain offers, meaning that transactions cannot be changed or reversed.
Although cryptocurrency is more anonymous than normal currency, it doesn’t make it impossible to trace. Every 'block' in the blockchain is home to chains of transaction histories, which can be linked back to crypto wallets. Therefore, if an illegal transaction is traced to a wallet, that wallet can be used to track the owner.
What to do if you are accused of money laundering via cryptocurrency
Government bodies are continually trying to keep up and introduce checks to ensure that currencies held on blockchains aren't financing crimes. If you have been accused of money laundering, you must instruct a specialist criminal lawyer as soon as possible. Our financial crime team can help defend even the most complex of money laundering cases, and can ensure you comply with investigations by the FCA, Serious Fraud Office (SFO), Crown Prosecution Service (CPS), HM Revenue and Customs (HMRC) and more.
Contact our Professional Financial Crime Solicitors in Central London Today
If you own a business that is being investigated for suspected money laundering or failure to report money laundering through digital assets, we can offer specialist advice and consultancy while providing a robust case and the representation you need to avoid prosecution. Get in touch with our experienced financial crime solicitors by contacting us on 020 7387 2032 for 24/7 legal support, or complete our online enquiry form.
