Cryptocurrency and Money Laundering Risks
Bitcoin and other Cryptocurrencies are never far from the news, mainly when the value is rising considerably. This week the price of a single bitcoin rose to a little over £10,000.
It is an odd 'currency', as it is not backed by any government, and certainly not by an underlying gold stock.
It is, in fact, nothing more than a virtual object that has a value dictated solely by supply and demand - indeed, that is one of the few characteristics that it shares with conventional currency.
Cryptocurrency has also the subject of debate and controversy, with some commentators branding it a pyramid scheme, a scam.
Various markets regulators have already issued warnings to investors buying Bitcoin and other Cryptocurrencies, cautioning that there are higher risks of "fraud and manipulation" in the market. For example, Jay Clayton, the Chairman of the US Securities and Exchange Commission (SEC) has said:
"A number of concerns have been raised regarding the Cryptocurrency and ICO markets, including that, as they are currently operating, there is substantially less investor protection than in our traditional securities markets, with correspondingly greater opportunities for fraud and manipulation".
So, why the attraction?
The main attractions of bitcoin is that it exists across borders, outside of traditional banking controls and with a secure cloak of anonymity. These three magic ingredients make this type of currency attractive to those seeking to launder the proceeds of crime.
Nobody is interested in the identity of the trader, the proceeds can be cashed in almost anywhere in the world (there are even cash machines in some countries, including England), and Blockchain encryption has rendered law enforcement impotent in this brave new world of international finance.
This explains a rise in value in just one year of 13 times that at the end of 2016.
But, the larger the sums that need to be laundered, the more complex and risky it is to make those initial transactions.
That is where the middle-man comes in; a person either knowingly or unwittingly agreeing to purchase bitcoin or, more commonly, transfer monies on behalf of a money launderer, taking a fee for his or her trouble along the way.
Sometimes the amount could be as little as a few hundred pounds but extrapolated this sum becomes significant. Such individuals are known as 'money mules'.
The government is keen to regulate these new currencies, and in a recent statement to parliament the treasury minister said:
"The UK Government is currently negotiating amendments to the 4th Anti-Money Laundering Directive that will bring virtual currency exchange platforms and custodian wallet providers into Anti-Money Laundering and Counter-Terrorist Financing regulation, which will result in these firms' activities being overseen by national competent authorities for these areas. The Government supports the intention behind these amendments. We expect these negotiations to conclude at EU level in late 2017/early 2018".
Until these protections are in place, people will be able to assist in the laundering of cash, with little that the authorities can do to stop it.
It perhaps sounds the stuff of fiction, but in the first nine months of 2017, there were over 8,652 'money mule' cases identified by Cifas, a leading fraud prevention service. This criminality represents just the tip of a money laundering iceberg.
The penalty for money laundering is potentially significant, with sentences of imprisonment as long as 14 years available to a Court.
More information can be found on this government website:
When a person becomes unwittingly involved in money laundering it is important to step back from the position as seen with the benefit of hindsight and examine what truly went on. A careful forensic analysis of the circumstances will reveal any defences available to someone suspected of money laundering crimes.