Money Laundering Through Cryptocurrencies

Abstract

Bitcoin, the world’s first cryptocurrency, was first introduced in 2009, by Satoshi Nakamoto. While many believe the name is a pseudonym, and the true identity of the creator(s) is unknown, it is an undisputed fact that cryptocurrencies have introduced an indelible change to monies worldwide. Consequently, cryptocurrencies have also introduced a plethora of new opportunities for money laundering activity.\nWhile cryptocurrencies follow the same three-step laundering process of placement, layering, and integration, the activity can be more difficult to detect due to the anonymous nature of cryptocurrencies. Moreover, while traditional schemes such as smurfing or gambling at a casino are still used as laundering techniques, more advanced methods such using mixers and tumblers or utilizing unscrupulous cryptocurrency exchanges are also being used to mask the flow of funds. Finally, the rapid increase in initial coin offerings (ICO’s) provides yet another outlet for cryptocurrency money laundering to occur.\nFortunately, advancements are being made on a variety of fronts to address the increase in illicit activity. First, the largest cryptocurrency exchange, Coinbase, has implemented a robust know-your-customer (KYC) program, as evidenced by my own experience of opening an account with the exchange. Secondly, researchers are finding new ways to extract information about certain cryptocurrency transactions which were previously thought to be unidentifiable. Finally, both law enforcement and government agencies, including the SEC and the Financial Crimes Enforcement Network, are using innovative, aggressive, and even clandestine techniques to combat cryptocurrency money laundering activity.