The amount of Bitcoin spent on illicit purposes has reached a new high with Bitcoin emerging as an ideal replacement for Fiat currency vis-a-vis Money Laundering and Black Money Hoarding activities.
Bitcoin and the concept of cryptocurrency in general, often evokes strong reactions from both supporters and detractors. While crypto enthusiasts support the democratization of currency, skeptics view it as a breeding ground for illicit activity. The emerging dark side of the crypto world indicates that these concerns are not unfounded.
Incidents of Bitcoin being used to seek payments for ransomware attacks as well as purchase illicit goods are already well-documented. Now, it appears that Bitcoin is fast becoming a money launderers’ panacea. Can Bitcoin be used to hoard and cash out black money or proceeds from illicit activities? If yes, how?
Why Bitcoin Appeals to Criminals?
Whenever benefits of Bitcoin are listed, global access, ease of use, anonymity and the ability to circumvent local laws rank right at the top. It now appears that these very features enable criminals and black money hoarders to get away with cashing out their ill-gotten proceeds.
Research and analysis of cryptocurrency-based crimes now directly place money laundering at the centre of all the illicit activities being carried out using virtual money like Bitcoin. The ability to launder money enables cybercriminals to obfuscate the origin of the funds, and later, convert Bitcoin into fiat currency that can be kept in banks or spent without inviting scrutiny.
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The Theory of Bitcoin Laundering Being a Dumb Crime
There is a section of experts who believe that Bitcoin laundering is a dumb, if not completely unfeasible, idea. The argument is that Bitcoin cannot be relied upon for money laundering as any transfers made through cryptocurrencies leave a permanent trail on the ledger databases known as Blockchain.
Kim Grauer, who is a senior economist at Blockchain analysis company Chainalysis, believes that the anonymity and global operations of Bitcoin may make it appealing to users with nefarious intentions the world over. However, because every Bitcoin transaction is recorded permanently and immutably on a public ledger, it offers an unprecedented level of transparency that can make hiding financial frauds that much harder.
Watch: How it is harder to get away with Money Laundering via Bitcoin?
Then, there are government agencies working to impose tighter sanctions on crypto transactions. The Financial Crimes Enforcement Network (FinCEN) of the US Treasury Department, for instance, wants Bitcoin transactions to fall under the purview of its regulations for money transmitters, enabling greater control of suspicious activity as well as money laundering.
The Bitcoin Laundering Modus Operandi
Of course, thanks to the digital trail left behind by Bitcoin transactions and the efforts of law enforcement agencies the world over, illicit funds hoarded in the form of crypto cannot simply be cashed out without raising red flags, and in turn, risking being caught.
Even so, as per recent data shared with Reuters, illicit Bitcoin worth a whopping $1.3 billion were transacted between 270 cryptocurrency addresses over the past year alone. This establishes without a shred of doubt that despite all the checks and balances, Bitcoin is readily being used to launder wealth. But how?
The Bitcoin laundering MO is to rely on a surprisingly close-knit group of service providers to liquidate ill-gotten crypto assets. Some of these service providers specialize in laundering services exclusively whereas others facilitate it owing to their lax compliance programs.
Another factor that allows cybercriminals and others to launder money using Bitcoin with a comfortable degree of anonymity is that the online addresses used for these transactions aren’t necessarily linked to the user’s real identity. This means that even if these transactions arouse suspicion and draw scrutiny from government agencies, the authorities can have a hard time tracing them back to the person behind it.
When it comes to cashing out these illicitly procured Bitcoins, criminals and tax evaders rely on mixing services to cash out their wealth safely. These mixers aid users by providing them with a newly generated address to deposit their assets. They, then, payout bitcoins from their reserves to these addresses, after taking a cut known as mixing fee.
The amount and frequency of these transactions are duly juggled to give these transactions a semblance of legitimacy. The user can gauge the effectiveness of the process by assessing the percentage link, also known as taint, between the deposited and received bitcoins. When mixing is done optimally, it results in zero percent taint – which means that there is no way to link the deposited bitcoins with the ones received. The now-clean bitcoin assets can be safely encashed or used as their user pleases.
With commissions as low as 15%, Bitcoin laundering is a cost-effective and nearly 100% safe way to launder money. Given how hard it is to regulate cryptocurrencies, this new laundering model is likely to send law enforcement agencies across the world on endless wild goose chases.
