What is Cryptocurrency Money Laundering?

Cryptocurrency money laundering (CML) is a technique used by criminals to legitimize and hide funds by converting fiat currency into crypto digital assets and diverting them through various channels. 

Get to know Cryptocurrency Money Laundering

Discussions about the risks of cryptocurrency money laundering are usually discussed as part of the Fear, Uncertainty, and Doubt (FUD) that still haunts Bitcoin and other cryptocurrencies.

Money laundering is often in the spotlight of governments and traditional financial institutions whenever the topic of cryptocurrency comes up (aside from the volatility of the crypto market and sustainability issues related to mining).

Government and Economist Views

Governments and financial institutions emphasize the issue of money laundering when discussing cryptocurrencies, in addition to concerns about market volatility, mining-related sustainability issues, and potential tax avoidance.

Politicians and economists see crypto as a potential tool for money laundering and tax evasion. Regulatory bodies such as the United States Securities and Exchange Commission (SEC) , the Federal Reserve, and other global entities criticize decentralized cryptocurrencies for being untraceable and lacking trustworthiness.

Colonial Pipeline Incident

Although commonly misunderstood, Bitcoin transactions are not anonymous or undetectable. Blockchain records transactions accurately, posing a challenge for those seeking anonymity.

Hackers like DarkSide, after the Colonial Pipeline incident, realized that Bitcoin does not provide a safe haven. 

At the beginning of its use, Bitcoin was used by criminals for money laundering. In 2020, the US government seized $1 billion in Bitcoin from the Silk Road network, tightening Anti-Money Laundering (AML) regulations globally.

Bitcoin Money Laundering 

In the beginning, when the government and regulatory agencies had no experience with Bitcoin, Bitcoin was used by criminals for money laundering.

In 2020, the US government seized $1 billion worth of Bitcoin from the Silk Road network, where individuals used Bitcoin to purchase illegal goods and launder millions of dollars worth of money.

Cases like these prompted most countries to tighten their anti-money laundering (AML) legal regulations for cryptocurrencies. 

Steps to Anticipate Crypto Money Laundering

The government enforces preventive measures such as Know Your Customer (KYC) rules on crypto agencies to reduce illegal activities. Popular exchanges such as Coinbase also help the government track the identity of crypto assets. 

Some perpetrators with criminal intentions ultimately try to move assets using Bitcoin and exchange assets between cryptocurrencies to complicate tracking efforts. As crypto becomes more widely accepted as a transaction tool, criminals may not always need to convert crypto back into fiat currency. 

Bitcoin Tax

With regard to taxes, many countries are still working to establish the best way to classify cryptocurrency assets themselves as well as any proceeds earned from trading Bitcoin and other digital assets.

Bitcoin is also often blamed for tax evasion efforts. Now that crypto is becoming more widely adopted, agencies like the IRS and SEC are introducing taxes on capital gains from crypto and making crypto-denominated salaries income taxable.

Also read: Crypto Tax in Indonesia: Based on Minister of Finance Ministerial Decree PMK 68/2022

Regulated Crypto Exchanges

Regulated crypto exchanges are those that comply with all crypto-related laws in their jurisdiction and are subject to formal regulatory oversight. Each country has its own laws for digital assets, and some are friendlier than others to decentralized finance. 

Regulated exchanges with SEC approval in the US include Coinbase, Binance.US, Gemini, and Kraken. Thanks to the good reputation given by these regulatory approvals, they have gained a major share of the market in the country.

These exchanges often offer more reliable and trustworthy services because they meet the requirements and protections set by the US government. Among those requirements is that they must comply with all anti-money laundering and KYC rules to prevent criminal activities.

Conclusion

Cryptocurrency Money Laundering (CML) remains a topic of concern for regulators and governments. While much effort is being made to improve transparency and compliance, the ever-evolving landscape of cryptocurrencies poses ongoing challenges. 

Also Read

What is Phishing? Examples of Cases in the Crypto Industry and How to Avoid Them

Who is Satoshi Nakamoto Really?

What is a Crypto Exchange and Why is it Important?

What is a Centralized Exchange (CEX)?

What is a Decentralized Exchange (DEX)?

DISCLAIMER : This article is informational in nature and is not an offer or invitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.