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Method Number 3: Prepaid Cryptocurrency Cards The third method is quite simple and involves using prepaid cards. Believe it or not, but nowadays, prepaid debit cards can be loaded with cryptocurrency. Once the prepaid debit card is loaded, the funds can then fund different types of illegal activities.
They can be traded for other currencies or handed off to third parties. Method Number 4: Online Gambling The next cryptocurrency money laundering method is also rather simple and involves online gambling. There numerous online gambling and gaming websites that accept cryptocurrencies. Cryptocurrency can be used to buy credit or virtual chips. Usually, the money launderers would play for a few rounds and then cash out again after just a few small transactions. By doing so, the money launderer has an explanation for the origin of the funds right away.
He can simply claim that the funds are the proceeds from winning in online games. Bitcoin ATMs continuously connected to the internet, allowing anyone with a credit or debit card to purchase Bitcoin. Additionally, they may possess bi-directional functionality allowing users to trade Bitcoins for cash using a scannable wallet address.
Bitcoin ATMs can also accept cash deposits, providing a QR code scanned at a traditional exchange and used to withdraw Bitcoin or other cryptocurrencies. Regulations used by financial institutions to obtain a record of customers and transactions for these machines vary by country and are often poorly enforced.
Criminals can exploit loopholes and weaknesses in cryptocurrency ATM management to get around Bitcoin money laundering risks. Money launderers are increasingly making use of Bitcoin ATMs to launder illegally obtained money. Whereas previously banking transfers or remittance services such as Western Union or MoneyGram were used, criminals now instruct their money mules to withdraw money from compromised bank accounts and to use it to buy Bitcoins via a Bitcoin ATM.
To avoid any identification procedures, the criminal depositors would apply smurfing techniques to split the funds into batches under EUR 1. Method Number 6: Cryptocurrency Peer-to-Peer Networks The sixth cryptocurrency money laundering method involves the so-called peer-to-peer networks.
Many criminals turn to decentralized peer-to-peer networks to lower crypto money laundering risk, which is frequently international. Here, they can often use unsuspecting third parties to send funds on their way to the next destination. Most cryptocurrency money laundering schemes end with the clean coin funneled into exchanges in countries with little or no AML regulations.
Method Number 7: Local Stores The seventh cryptocurrency money laundering method involves using local stores. Nowadays, the possibility exists to trade cryptocurrencies Face-to-Face. Several sites on the Internet offer to match individuals willing to buy or sell Bitcoins in person.
Some sellers prefer cash as payment while others may allow various payment forms such as online payment service, bank or money services businesses-transfers, or others. According to information provided by a European Police Authority , it was found that a money laundering organization that was traditionally dedicated to place and layer criminal funds derived from the trafficking of cocaine from Spain to Colombia via the use of a bank account smurfing techniques had updated its modus operandi and was now using LocalBitcoins.
After picking up considerable amounts of criminal cash from drug traffickers in Europe, this money laundering organization continued to use its smurfing techniques to split and deposit funds into many bank accounts under their control. After several transfers to other bank accounts, the funds were ultimately used to purchase Bitcoins from private vendors located in different European countries via the LocalBitcoins platform. To then move the value of the obtained Bitcoins to Colombia, the money laundering organization uses two simple options: Option 1: On the same day, the exact amount of purchased Bitcoins in the European Union was resold by the money laundering organization by again using the services of Local.
But this time, the Bitcoins were sold to private buyers in Colombia that pay with bank transfers directly into Colombian bank accounts, in Colombian pesos. Option 2: On the same day, the LocalBitcoin wallet, in which the purchased Bitcoins and the necessary information to access and use the wallet were stored, was delivered to the cocaine trafficking criminal organization in Colombia.
They can then use the value stored in that wallet in Colombia or anywhere in the world. Method Number 8: Cryptocurrency Mixing Services Tumblers The last cryptocurrency money laundering method involves mixing services, known as tumblers. Tumblers can be used to split up the dirty cryptocurrency effectively. Tumblers send it through various addresses and then recombine it—the reassembly results in a new, rather clean, and hardly traceable amount of cryptocurrencies.
In most laundering cases that involve tumblers, the cryptocurrency starts in a legitimate wallet on the whitenet. It is then transferred to a wallet in the dark web making multiple hops before landing in a second dark web wallet. At this point, the currency is clean enough to bring it back up to the whitenet and trade it on a legitimate cryptocurrency exchange or even sell it for fiat currency, such as Euro, Dollar, or Pound.
Many large corporations now accept digital currency as payment for goods and services, and many banks are considering the use of blockchain technology. Having said that, cryptocurrency has the potential to completely replace paper and plastic money. As a result, it is critical to investigate the flaws that allow these currencies to be used for money laundering and to develop appropriate counter-technologies to combat the crime.
Although some states have asserted regulatory jurisdiction over virtual currency businesses, many have not. While New York has appeared bullish on crypto enforcement, for example, Florida legislators recently passed a bill that neutralized an existing Florida law intended to curb money laundering in the crypto industry.
Wyoming has passed bills aiming to clarify the regulation of cryptocurrency businesses but has also sought to establish itself as crypto-friendly. AML compliance tools for crypto While regulatory schemes evolve, multiple firms have emerged on a parallel track with a focus on developing AML compliance solutions for the crypto industry.
Many crypto firms often hire banking compliance veterans to oversee AML compliance operations. In a broader sense, these firms face the same questions as banks: What are the inherent risks? What are the controls that can mitigate those risks?
Which risks can be tolerated? For example, AML laws seek to prevent "layering," a process by which criminal proceeds are moved among multiple financial institutions to obscure their origins. Traditionally, money launderers engaging in layering repeatedly move fiat currency, such as U. With crypto, money launderers may move the illicit funds through hundreds of wallets before depositing the funds and cashing out the funds at a crypto exchange. Unlike bank accounts, thousands of wallets may be opened without proof of identity, within seconds.
Tools now exist to assist crypto businesses in determining the origin of potentially illicit funds. These tools may discern, for example, whether the funds originated from a dark web marketplace, regardless of the volume of wallet transfers, and analyze the proximity between a transaction and its ultimate source. In doing so, these tools conduct blockchain analysis to assess the risks associated with a particular wallet holder by, for example, reviewing the risk associated with others with whom the wallet holder has transacted.
These tools also take into account whether the customer has conducted transactions on questionable exchanges. Many of these tools, such as those offered by Elliptic and Chainalysis, initially were created to assist law enforcement.
Conclusion Cryptocurrencies undoubtedly will be subject to increased regulation in the future. Likewise, current trends point to increased AML regulation by multiple government agencies in the near future. While regulatory gray areas and safe harbors abound, regulators continue to establish oversight over this growing industry. Regulated cryptocurrency business that fail to engage in basic AML compliance — such as conducting KYC on new customers, monitoring transactions, and investigating suspicious transactions — may find themselves in the crosshairs of federal and state regulators.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias. Katherine A.
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