It’s been an interesting last several months for AML practitioners and cryptoasset observers. Several articles have been published – I’ll link to them below – addressing and comparing the risks of money laundering within the traditional international financial system and cryptoassets.
TLDR – The traditional financial system of international banks remains the preferred vehicle for money laundering at scale by criminals. That is not to say, however, that cryptoassets are without AML risk, just that in their current iterations, money laundering in fiat outpaces the Bitcoin equivalent from between 800-2,000 to every Bitcoin equivalent dollar as based on the United Nations Office on Drugs and Crime (UNODC) estimates of total global annual money laundering.
The first article from Cointelegraph is an interesting analysis of how Bitcoin is essentially impractical for large-scale money laundering given the inherent record-keeping aspect of blockchains and the complexity criminals would need to overcome in employing obfuscation techniques to convert their funds back to fiat. Additionally, the article notes that for every dollar of Bitcoin spent in a dark net market, over 800 are laundered – on the low end of the previously mentioned UNODC statistics regarding global money laundering – via traditional financial institutions.
Link: https://cointelegraph.com/news/comparing-money-laundering-with-cryptocurrencies-and-fiat
The second article appeared in Mexico’s El Economista noting that international banks, despite being highly regulated, present the highest risk for money laundering, as compared to the emerging risk of cryptoassets and references the preliminary findings appearing in Mexico’s Ministry of the Interior’s Financial Intelligence Unit’s 2d Edition of their National Risk Assessment (ENR – Evaluación Nacional de Riesgos).
Link: https://www.eleconomista.com.mx/sectorfinanciero/G7-bancario-el-mas-regulado-pero-el-mas-proclive-para-el-lavado-de-dinero-20200820-0154.html (original Spanish)
News.bitcoin.com link referencing the original: https://news.bitcoin.com/banks-in-mexico-pose-greater-money-laundering-risk-than-crypto-firms-says-report/
The final article from the Anti-Corruption Digest references a report issued by BAE Systems and the Society for Worldwide Interbank Financial Telecommunication (SWIFT) noting that, common perceptions aside, criminals’ first choice in laundering money, particularly in a cybercrime context, is to use traditional financial institutions, not cryptoassets.
Link: https://anticorruptiondigest.com/2020/09/10/money-launderers-use-fiat-not-crypto/#axzz6Y8RSbguT
Report link: https://www.swift.com/sites/default/files/files/swift_bae_report_Follow-The%20Money.pdf
Finally, earlier this month, the Financial Action Task Force (FATF) released their Virtual Assets Red Flag Indicators of Money Laundering and Terrorist Financing report identifying key considerations for national Financial Intelligence Units (FIU) as much as for AML/CFT practitioners in general. Based on 100 case studies, the report is a great resource for getting acquainted with how cryptoasset related red flags may be presented.
Link: http://www.fatf-gafi.org/media/fatf/documents/recommendations/Virtual-Assets-Red-Flag-Indicators.pdf
What’s your take – whether as AML professionals, investigators, lawyers or analysts – on the perception of risk in cryptoassets?
If you’re in the insurance space, what is your view as to the relative risk of cryptoassets?
