Crypto Was One of the Biggest Money Laundering Risks in 2022-2023: UK Govt. Report (2024)

FAQs

Crypto Was One of the Biggest Money Laundering Risks in 2022-2023: UK Govt. Report? ›

In a May 1 report, the U.K. Treasury concluded from data provided by the Financial Conduct Authority (FCA) that crypto-asset companies were among the top four kinds of firms that remained “particularly vulnerable” to financial crime, particularly for cases of money laundering between 2022 and 2023.

Between 2022 and 2023, crypto alongside retail banking, wholesale banking and wealth management posed the greatest risk of being exploited for money laundering, a report by the U.K. Treasury department showed.

Criminals are increasingly using crypto assets to conceal and move the proceeds of crime at scale and pace, pay for other criminal services and as a means to defraud victims.

Irregular patterns relating to the size, frequency, or type of crypto transactions may be red flags pointing to money laundering activity, including: Customers making several high-value transfers within a short amount of time, such as a 24-hr period. Structuring transaction amounts to fall below reporting thresholds.

Is there money laundering in crypto transactions? According to a 2022 report from the leading blockchain analytics company Chainalysis, criminals laundered $8.6 billion in cryptocurrency in 2021, a 30% increase over the previous year.

The goal of money laundering is to obscure the criminal origins of funds so that they can be accessed and spent. In the context of cryptocurrency-based crime, that generally means moving funds to services where they can be converted into cash, while often taking extra steps to conceal where the funds came from.

While Bitcoin is welcomed in many parts of the world, several countries are wary of its volatility and decentralized nature. Some also perceive it as a threat to their current monetary systems while being concerned about its use to support illicit activities like drug trafficking, money laundering, and terrorism.

Criminal Forfeiture

A warrant is not the only way for a law enforcement agency to seize bitcoin held by another individual or entity. Bitcoin can also be taken by the government through a process called forfeiture.

If the government sees evidence that you may have participated in the unlawful gain of cryptocurrency, you could be charged with theft. These are just some of the federal criminal offenses that can be charged with the use of cryptocurrency.

What is the FBI warning on crypto? ›

The FBI warns Americans against using cryptocurrency money transmitting services that are not registered as Money Services Businesses ( MSB ) according to United States federal law ( 31 U.S.C. § 5330 ; 31 CFR §§ 1010; 1022 ) and do not adhere to anti-money laundering requirements.

Common red flags include: The size and frequency of transactions (multiple small amounts or multiple high-value amounts within hours) An irregular or unusual pattern of transactions.

It is potentially loss making. Repetitive instructions involving common features/parties or back to back transactions with property rapidly changing value. The transaction is unusual for the client's profile. Unexplained urgency, requests for short cuts or changes to the transaction particularly at last minute.

Know Your Customer (KYC) and AML in Cryptocurrency

Know your customer (KYC) is an initialism often paired with AML. They complement each other to detect and prevent money laundering activities. KYC is the process of collecting customer information to identify outliers.

Money laundering using cryptocurrencies follows the general pattern of placement-layering-integration but with some specific features: Cryptocurrencies are anonymous at their point of creation therefore the placement stage of the money laundering process is often absent.

In October, the Financial Crimes Enforcement Network proposed a new regulatory regime for crypto mixing services that would treat the entire class of privacy tools as money laundering threats and force new recordkeeping rules on U.S. people or entities that use them.

Another method employed by criminals is the exploitation of peer-to-peer networks and over-the-counter (OTC) brokers. These platforms allow users to trade cryptocurrencies without proper identification, making it easier for criminals to launder money without leaving a trace.

The value of all illicit funds laundered is about $2 trillion a year, Deloitte wrote in a June 2023 report. In 2023, there was an increase in the use of blockchain bridges and gambling services for laundering crypto, while in 2022, there was greater reliance on illicit service types and centralized exchanges.

It's a pretty straightforward way to launder money using Bitcoin. How do criminals use Bitcoin mixers to launder money? The process of mixing different digital assets increases anonymity, so criminals often use it to cover their tracks before transferring funds to legitimate businesses or major crypto exchanges.