Cryptocurrencies are known for how decentralised and unrevealing they are when using them.
This is possible as they work with the Principle of cryptography.
Also, crypto transactions are secured and recorded in a safe and secured ledger called the blockchain.
With blockchain, you can verify and confirm all transactions done in the crypto space.
Anonymity is not a bad idea or a bad concept but it has been used to process evil activities, flagging cryptocurrencies as a scam tool.
The issue of money laundering has been making rounds for a while now and neither fiat nor crypto is excluded.
Some financial institutions are criticizing cryptocurrencies because of their high volatility.
But that alone is not the reason why cryptocurrencies are banned or prohibited in some countries.
Some countries feel that cryptocurrencies are used mainly for crimes and fraudulent activities since they are decentralised and not trackable.
That opinion seem to be barren as cryptocurrencies are even more trackable than fiat currencies, according to reports.
In this article, we are going to reveal the steps of money laundering and the reasons why cryptocurrencies are more trackable than fiat currencies.
NOTE: Fiat is any legal currency of a country.
What is Money Laundering
Money laundering is the conversion of illegally gained proceeds into legal proceeds.
This is not limited to terrorism financing and other financial crimes.
The modern steps of Money Laundering
Over the years, money laundering has been prevalent in the world and was not as complex as it is today.
According to ModernJanek Ratnatunga, on his research on money laundering, laundering is done through the steps below;
- Placement: The illegally acquired money is being put into a legal financial business or institution.
- Layering: After placement, the money is then transferred severally in the financial system to create confusion. Sometimes, this is achieved by using multiple transfer accounts.
- Integration: The illegal money will be put back into the financial system( real estate, life insurance, etc.) to transform illegal money into legal. With this, we say the money has been integrated.
Fiat currency as a Money laundering tool
Before the introduction of cryptocurrencies into the financial systems of the world, fiat currencies have been existing and were used for money laundering severally.
Several trusted banks are engaged in fiat money laundering. This is possible because the banking system is centralised and not transparent like the blockchain for cryptocurrencies.
BuzzFeedNews revealed some banks that continued money laundering even after sanctions and fines.
The reports alleged that JPMorgan Chase, HSBC, Standard Chartered, Deutsche Bank, and Bank of New York Mellon, move funds for criminals.
FinCEN, the US financial intelligence Network, known for fighting against money laundering is aware of the money laundering done by banks but can’t stop it.
Tracking or tracing fiat currency laundered is almost hard because fiat is centralised and because of the modern money laundering methods.
The banks, therefore, have immunity over prosecutions and do their operations behind the scenes.
Cryptocurrency as a money laundering tool
The money laundering saga with cryptocurrencies was prevalent in the earlier days of cryptocurrency.
Cryptocurrency is painted as a huge tool for money laundering but statistics say otherwise.
Reports show that about 1.1% of all cryptocurrency transactions are
In the early days of Bitcoin, most people use it to acquire weapons or illegal items on the dark web with the hope of being anonymous, according to them.
A lot of people are into the crypto ecosystem because they feel they can go anonymous with their illegal activities.
Is bitcoin anonymous?
Cryptocurrencies are easier to track than fiat currencies
It is important to note that Bitcoin was not created to support money laundering or any illicit operations.
Bitcoin, the first cryptocurrency, was created as a store of value, and to give users the freedom and transparency fiat couldn’t give.
With Bitcoin, you become your bank.
To achieve this, Bitcoin was built on the blockchain, a secured decentralised ledger, slightly the opposite of a bank.
The blockchain is open source and transparent, which makes it possible for anyone to view or access it, unlike banks.
With this, all transactions done in a blockchain network can be viewed easily by anyone in the whole world.
Cryptocurrencies become more easily trackable than fiat.
Linking Bitcoin transactions together to get a user becomes simple with FinTech and RegTech software.
Remember when the Bitfinix crypto exchange was hacked in 2016.
The hacker or hackers laundered about $4.5 billion in crypto.
On Tuesday, February 8, 2022, two individuals were arrested after being traced to the Bitfibix hack.
So far, the law agency has seized over $3.6 billion in cryptocurrency linked to the Bitfinix hack.
If cryptocurrencies are anonymous, how were the hackers caught?
Why is tracking possible in the crypto space?
Apart from the fact that the blockchain is transparent and revealing. We still have a vital reason why someone can be tracked by linking blockchain transactions.
That is where KYC comes in.
Know your customer (KYC) is the process where banks or businesses identify and verify the identity of their customers.
It is also used to confirm the identity of your clients.
Crypto exchanges are not excluded from KYC policy, as they handle money too and financial regulators impose KYC policy on all crypto exchanges.
The regulation is called AML (Anti-Money Laundering) and customer identity verification.
Binance CEO confirms how trackable cryptocurrencies are
Changpeng Zhao, the CEO of the world’s largest crypto exchange, Binance, was asked by Forbes about his opinion on money being laundered through crypto and fiat currencies, he revealed;
“We live in a complex world, where one country may view an act as criminal and the other may not.
A lot of people have a black and white view, but the world is actually grey. Not all banks are innocent
and not all crypto companies are bad.”
“If you are using Bitcoin, it is a transparent ledger. Once you have a few transactions, you can trace
the funds all the way back to where the coins were mined.
So, in this way, blockchain actually provides a very transparent ledger for everyone to analyse.
If you piece together a few data points and do a cluster analysis, it is not that hard for an algorithm to analyse the origin. Privacy coins are
harder to track, but their market cap is not that high, making larger transactions more difficult. So, to be honest, it is much easier to make illicit transactions using fiat than using crypto.”
According to Binance, sending huge amount of money through crypto can be easily traced than doing so with fiat currencies.
“The cryptocurrency market cap is so small, that if you are moving a $100 million dollars, you cannot do so without going through a centralised exchange, making it even easier to trace.”
Tracking any crypto transaction can be done by anyone, through the blockchain.
But linking the transactions to the person who made them requires additional processing with the FinTech and RegTech software, through the KYC data on the crypto exchange.
With this, tracking someone who utilizes a non-custodian wallet seems impossible, but since technology keeps advancing we won’t be surprised if it’s possible in the future.
Also, some people are not caught directly, but in link with other people.
In the crypto space, anything is possible.
NOTE: Trustwallet is a non-custodian wallet type.
The crypto space is being painted black why initially the financial system of the world is worse.
Dirty fiat is laundered from the world and channelled into the crypto space hoping to integrate as legit money.
If you think you can’t be traced using crypto for fraud, you need to have a rethink.