Cryptocurrency and Money Laundering

We all have been hearing since last year about cryptocurrency and the lucrative profits it offers which is attracting all the money-launders, terrorism financing, and other financial fraudulent activities. A lot of news of crypto scandals is floating in the market. Due to emerging trends of cryptocurrency and the fraud activities involvement, the government authorities and regulators have increased their focus on all the institutions dealing with cryptocurrency in making them compliant and ensuring them to follow the regulations.

How fraudsters use Crypto to launder illegal money?

Fraudsters and criminal use crypto money laundering to conceal all their illicit funds in a lot of ways. The most dignified form of money laundering is bitcoin money laundering. There are three main stages in money laundering, and these same stages are applied to crypto money laundering as well.

Let’s understand what is Money Laundering first –

Money laundering is a process where a large amount of proceeds is generated by criminal activities and terrorist funding such as drug trafficking, arms trafficking, gambling, tax evasion etc.

Three stages of Crypto Money Laundering or Money Laundering

1. Placement – The first stage is introducing illegal proceeds into purchasing cryptocurrency, creating a digital wallet to do financial transactions just like a bank account. Cryptocurrencies or can be acquired with cash or other types of crypto, online cryptocurrency trading exchanges, or through licensed exchangers which may or may not require customer identification. Legal transactions follow the regulatory process for identity verification and are AML compliant.

2. Layering – The second stage is where the illicit money is separated from its source and where the funds are concealed through various ways such as transferring funds to different wallets or shifting services to hide the fund source.

3. Integration – The final stage is the funds that were laundered money goes back to the owner who uses the money to make purchases or invest in new business. Cryptocurrencies could be switched to fiat currencies through the exchange process. This exchange process mostly follows a stringent identification process and supports popular coins such as Bitcoins etc. Offshore fiat currency bank account sometimes can be used to launder dirty money through an online company that is accepting bitcoin payments and can be created to allow income and switch dirty cryptocurrency into white/legal bitcoins. Cryptocurrency can be used to purchase goods also digital wallets can be stored on phones, online devices making it possible to sell crypto coins for physical cash/money.