Cryptocurrency and Money Laundering
Individuals and institutions make use of this technology which gives them quicker access to financial services. Such access is also very cost-effective.
By: Kashyap Partners & Associates LLP
This was also pointed out at the G20 Summit of 2019 in Japan wherein it was said by one of the speakers- "While crypto-assets do not pose a threat to global financial stability at this point, we remain vigilant to risks, including those related to consumer and investor protection, anti-money laundering (AML) and countering the financing of terrorism."
According to studies conducted by Crypto analysts, money laundering with cryptocurrencies is very risky and complicated. They claim that digital currency transactions are more transparent. But it has been often argued that on a small scale, money laundering is conducted through cryptocurrencies.
To hide the wrongful source of money, criminals use a number of processes that involve cryptocurrency. Cash-based money laundering using cryptocurrency involves three stages. The first stage is placement. Illegal money is brought into the system through intermediaries such as financial institutions, casinos. A kind of cryptocurrency may be exchanged for crypto or cash. Online crypto exchanges may be used for this. The second stage is layering where criminals conceal such illicit sources by way of structured transactions. It is difficult to trail down, then source of illegal funds. Using crypto exchanges, criminals can transform one cryptocurrency into another using such crypto exchanges. Crypto holdings can also be moved to another country. The third stage is integration where illicit money is placed back into the system in a legal manner.
Crypto users use a method called crypto mixing – a method which is also commonly referred to as using "tumblers". Here, they conduct transactions by mixing their cryptos with cryptos of other users. This involves taking crypto from a customer, sending them through different addresses and then mixing them, which will in turn result in clean carpets.
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Kashyap Partners & Associates LLP