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The sudden rise in the use of cryptocurrency as a channel to launder money by all sorts of criminal organizations and drug cartels has awakened some sorts of concern among the US law enforcement agencies including the Drug Enforcement Agency (DEA). Although cryptocurrency accounts for only a tiny percentage of the total amount laundered money globally – a sum of 2 trillion USD, – the role of cryptocurrency in money laundering seems to be increasing.
The topic was discussed at length during the US congressional hearing into Mexican drug cartels and border security held on Dec. 12. According to the deputy chief of operations Global Enforcement at the US DEA, Paul Knierim, the natural relationship created by trading large volume of illicit and licit goods from China can be blamed as the cause of the shift towards Chinese and Asian money launderers. The understanding between them makes the money laundering process so much easier.
Stemming from the fact that many Chinese criminal entities operate on a contractual basis, the director of the US Department of Homeland Security’s Investigation Joint Task Force, Janice Ayala, asserted that these criminal organizations are responsible for the tremendous rise in money laundering through cryptocurrency. To back up her claim, Ayala highlighted that a huge amount of Chinese counterfeit foreign identity documents have been detected in the laundered funds flowing back to Mexican criminals.
The 2017 National Drug Threat Assessment report issued by the DEA stated that there are some vulnerabilities in the virtual currency space, which make it easy for criminal organizations to transfer illicit proceeds across the globe. One of such vulnerabilities is its anonymous nature which makes it the go-to money laundering method for most said criminal endeavors.
The report also stated that there has been a steady decrease in the total amount of bulk cash seizures in the US since 2010. This could be seen as a pointer that more discreet methods are being used for moving money across international borders. Among which cryptocurrency and the Chinese Underground Banking System (CUBS) seem to be the most prominent methods. The CUBS is a kind of ‘black’ market system operated by cash brokers who employ agents instead of transacting through China’s banking system in order to circumvent China’s capital controls. Due to the 50,000 USD limit placed on transfer, China citizens turn to these cash brokers for transfer of funds.
While money laundering through cryptocurrency is operated by Over-the-Counter (OTC) Bitcoin brokers, who make use of foreign Bitcoin wallet-hosting exchanges that do not conduct proper Know Your Customer (KYC) or anti-money laundering monitoring on Bitcoin transactions.
The director of analysis at the Center for Sanctions and Illicit Finance, Yaya Fanusie, advised that police and intelligent departments who are saddled with the responsibility of dealing with cyber issues should deepen their expertise on cryptocurrencies and blockchain technology as it will likely become a major player in the cybercrime realm.