Cryptocurrency is likely one of the fastest-moving industries within the digital world, with a market that was valued at $1.03 billion in 2019 and is projected to succeed in $1.4 billion by 2024 at a compound annual development charge (CAGR) of 6.18 p.c. Bitcoin is likely one of the most well-known names within the cryptocurrency house, accounting for $6 billion in day by day transactions amongst 153 million registered consumer addresses.
The forex is well-known for its huge worth fluctuations, as a single bitcoin price simply 9 cents in 2010, $313.92 in 2015 and a staggering $13,421.44 in 2018 earlier than sharply lowering to $3,869.47 in 2019. 1000’s of different cryptocurrencies started circulating on crypto exchanges lately, corresponding to Ethereum, Monero and Ripple, lots of which leverage blockchain know-how to function a transaction database.
These varied cryptocurrencies are additionally extensively recognized for his or her function in cybercrime, whether or not it is by way of direct theft or laundering ill-gotten funds from different schemes. Cryptocurrency-related crimes totaled $4.3 billion in 2019, a bigger sum than in 2017 and 2018 mixed. The identical 12 months noticed $2.8 billion in laundered cash movement by means of cryptocurrency exchanges, up from $1 billion in 2018.
Authorities regulators and cryptocurrency exchanges are frantically on the lookout for methods to control and stop the laundering of stolen cash by means of cryptocurrencies, with some strategies exhibiting extra promise than others. The next Deep Dive explores how cybercriminals leverage cryptocurrency exchanges for cash laundering and the way authorities businesses are cracking down on exchanges that allow launderers run amok.
How Cash Launderers Exploit Cryptocurrency
Cryptocurrencies are fashionable for transactions through which customers need anonymity — corresponding to when buying illicit medication or grownup materials — and it’s this identical anonymity that makes them fashionable for cash laundering. All transactions are logged into the blockchain, however these are usually made underneath pseudonyms or usernames which can be troublesome to hyperlink to precise identities. This lack of identification info is compounded by the weak KYC procedures of many cryptocurrency exchanges, with a latest research discovering that 56 percent of all exchanges lacked adequate KYC processes, lots of which did so on objective to keep away from complying with AML rules. Most of those poorly protected exchanges are situated in Russia, the U.Ok. or the U.S., however some nations, like Seychelles and Singapore, lack KYC procedures on a big majority of their exchanges, making them hotbeds for cash laundering and different cybercrimes.
Monetary regulators, monetary intelligence models and plenty of cryptocurrency exchanges are expressing rising concern in regards to the elevated use of cryptocurrencies for committing cybercrimes. Seventy percent of respondents in a latest survey stated that felony exercise was a prime concern for professionals within the world cryptocurrency and monetary industries, with this exercise taking quite a lot of types. Respondents have been most involved about cash laundering (84 p.c), with 79 p.c involved about the usage of cryptocurrency to fund terrorist teams and 76 p.c nervous about its use in funding human trafficking. There was a notable gulf in opinion when it got here to perceptions of cryptocurrencies’ dangers, nonetheless: 63 p.c of banks and 56 p.c of governments felt cryptocurrencies pose a major cybercrime threat, versus solely 9 p.c of cryptocurrency trade professionals.
This hole in opinion implies that any enchancment in cryptocurrency exchanges’ AML/KYC procedures will possible come about by means of regulatory orders slightly than a reliance on exchanges taking the initiative for themselves.
Implementing AML/KYC Compliance At Cryptocurrency Exchanges
World governments have already taken numerous steps to curb cash laundering by requiring cryptocurrency exchanges to deliver their KYC processes consistent with these of different FIs. The Monetary Crimes Enforcement Community (FinCEN), a bureau of the U.S. Division of the Treasury, announced in November 2019 that it might start strictly implementing the “journey rule” for cryptocurrency exchanges. This rule forces exchanges to confirm prospects’ true identities in addition to establish any senders and recipients of cryptocurrency transfers price $3,000 or extra. It was initially put into place in 2013, however was solely intermittently enforced over the subsequent six years, letting many cryptocurrency exchanges proceed their previous KYC-less practices with impunity.
The U.S. authorities labored to curb cryptocurrency exchanges’ lax AML procedures in the identical 12 months, following the instance set by different monetary regulatory businesses around the globe. FinCEN charged the proprietor of a privately owned change with violating the Financial institution Secrecy Act by failing to report greater than 150 transactions that have been every price greater than $10,000, all of which required a forex transaction report back to be despatched to the Treasury. The proprietor of the change was required to pay a $35,000 effective and was prohibited from ever working a cash transmission service once more, sending a agency warning to different cryptocurrency exchanges in regards to the penalties of failing to adjust to AML and KYC necessities.
Cryptocurrency exchanges are due to this fact taking their AML/KYC compliance extra significantly, and are even partnering with third events to assist root out potential cash launderers. Exchanges wishing to offer a safe buyer expertise and keep away from punishment from federal authorities would do properly to comply with this instance.