Cryptocurrency money laundering

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September 26, 2022 - For many decades, the U.S. government has required financial institutions to take steps to help detect and prevent financial crimes including money laundering and terrorist financing. Federal law requires financial institutions to keep records of cash purchases of negotiable instruments, file reports of cash transactions exceeding $10,000, identify and assess risk of customers (Know Your Customer (KYC) rules) and report suspicious activity that might suggest money laundering, tax evasion, or other criminal activities. While Congress has repeatedly sought to enhance the anti-money laundering (AML) laws and penalties, federal regulators have played a critical role in updating and enforcing these regulations as they apply to cryptocurrency businesses. States, meanwhile, have also inserted themselves into this regulatory mix. The overlapping jurisdictions of these government regulators coupled with differing interpretations of AML compliance have triggered confusion and criticism from the cryptocurrency industry. A review of recent enforcement actions, as well as regulators' statements and formal guidance, sharpen the focus of regulatory intent in the cryptocurrency industry. In addition, the growing number of methods and technologies developed to conduct KYC and transaction monitoring help clarify and expand best practices for participants in the industry. I. The legal and regulatory framework of the crypto industry A. FinCEN Planting its jurisdictional f...

Background Cryptocurrencies can make it easier for fraudsters to obscure the source of criminal proceeds and are increasingly becoming the preferred currency of cybercriminals, from purchasing illicit goods using Bitcoin as a payment method to ransomware attacks where payments by Bitcoin are demanded. This trend is more prevalent because cryptocurrency offers a combination of anonymity, ease of use and the ability to circumvent international borders and regulations, in essence, to launder the ill-gotten proceeds. The advanced fraudster or money launderer using Bitcoin may use both Bitcoin mixing services and Bitcoin exchanges. Bitcoin mixers typically provide customers with a newly generated bitcoin address to make a deposit. The Bitcoin mixing service pays out other Bitcoins from its reserve to Bitcoin addresses supplied by the customer after deducting a mixing fee. Some randomness is applied to the frequency and amount of payments/fees to create a guise of legitimacy. Bitcoin mixing services allow fraudsters to conceal the origin of their ill-gotten proceeds, disassociating them from the criminal activities to cash out safely using a Bitcoin exchange, which is designed to convert Bitcoins to spendable money anonymously. Risk Many cryptoassets are volatile and, more likely than not, present a risk for financial institutions as exposures increase. Bitcoin, Ethereum, Litecoin, Dash and other coins can be some of the riskiest assets a bank could hold. So, it is not surprisin...

WASHINGTON (AP) — The world’s largest cryptocurrency exchange Binance and its founder Changpeng Zhao are accused of misusing investor funds, operating as an unregistered exchange and violating a slew of U.S. securities laws in Filed in the U.S. District Court for the District of Columbia, the Securities and Exchange Commission lawsuit on Monday lists thirteen charges against the firm — including commingling and diverting customer assets to an entity Zhao owned called Sigma Chain. Binance is a Cayman Islands limited liability company founded by Zhao and the charges are familiar to practices uncovered after the collapse of the second largest cryptocurrency exchange, FTX, last year. The lawsuit lays out the extent to which the firms owners knew of the alleged legal violations: “Binance’s CCO bluntly admitted to another Binance compliance officer in December 2018, “we are operating as a fking unlicensed securities exchange in the USA bro.” SEC Chair Gary Gensler in a written statement that Zhao and Binance “engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law.” “The public should beware of investing any of their hard-earned assets with or on these unlawful platforms,” Gensler said. READ MORE: Amid value drops and increased regulation, what’s the future of cryptocurrency? In a social media post, Binance said that it has been cooperating with the SEC’s investigation but said that the agency “chose to act unilatera...

A common argument against cryptocurrency is that it makes it easier for criminals to finance their operations. Since blockchains are While cryptocurrency is a tool that can facilitate money laundering, money laundering is more complicated than it seems. Interestingly, many money launderers won’t touch cryptocurrencies like What’s money laundering? In the world of finance, money laundering refers to transferring cash obtained from illegal activities into legitimate financial institutions. Criminals can’t directly deposit large funds into banks or centralized fintech apps without triggering alarms. Therefore, money launderers devise complex transfer methods that make their cash appear to come from “clean” sources. There are many ways money launderers funnel cash into bank accounts, but a popular method is to create a sham company. For instance, a criminal gang may open a business account and make it appear like money from drug trafficking is from a fake restaurant. Money launderers may also use alternative assets like fine art, precious metals, or casino chips to hide their transfers. Some criminal organizations set up international networks to transfer money to foreign countries with lax security policies. Although the concept of money laundering has been around for millennia, it was only in the latter half of the 20th century that global leaders introduced significant anti-money laundering (AML) laws. The name originated in the 1920s because the mob used laundromats as sha...