The European Union’s Crypto-Quandary

 In AML Surveillance, Anti-Money Laundering, Bitcoin, Customer Due Diligence, Cybersecurity, Risk

Since their grand introduction on the global stage, cryptocurrencies have been the subject of great debate amongst the masses, particularly in the financial sphere where potential threats that have emerged in this budding market could pose serious risks to both national and international interests and financial security across the globe. The benefits associated with cryptocurrency and blockchain technology are endless, and many believe that these technologies have the power to help reduce common financial crimes such as fraud, identity theft, and counterfeiting if used appropriately. Furthermore, cybercurrencies offer user-friendly capabilities and features that streamline efficiency and peer-to-peer negotiations while cutting out the “middle man” and some of the oft-unnecessary fees that accompany transactions made through traditional banks. The prime argument against crypto-platforms however remains that these currencies provide users with an unprecedented level of  “anonymity” when making financial transactions of seemingly any size, leaving many to speculate that ill-gotten funds could ultimately becoming the driving force behind some of today’s most popular exchanges, a group that includes big names such as Bitcoin and Ethereum. Although there had been little evidence of such phenomena to date, some of these fears have been realized to some extent over the course of the past week following a highly publicized report from the European Union’s (EU) primary law enforcement agency, Europol. Led by director Rob Wainwright, Europol handles all EU matters relating to international organized crime and terrorism. In a recent interview with the British Broadcasting Corporation (BBC), Wainwright “estimated that around 4% of all criminal proceeds in Europe are being funneled through currencies like Bitcoin — and he expects this figure to increase” (Corcoran, 2018). Given that the estimate for the total amount of illicit funds flowing throughout Europe currently sits at approximately £100 billion, simple math would then find the estimated amount of these funds being laundered through crypto-exchanges to be around £4 billion ($5.5 billion USD).

Wainwright believes that this figure is growing at a rapid pace, with the amount of illegal money transferred through these exchanges likely to be directly correlated to the expansion of the crypto industry that is expected in the coming months. The staggering figure for illicit funds being exchanged throughout Europe represents a serious dilemma for law enforcement agencies moving forward both within the country and across the globe, as experts believe that the exponential rise of cybercurrencies seen in 2017 may be just the tip of the iceberg. Wainwright expanded on the difficulties at hand, stating that law enforcement groups have had trouble monitoring crypto-transactions thus far due to the lack of governance by a central authority, and these agencies have also found it “harder to stop illicit cryptocurrency transfers because they have no way to freeze crypto wallets in the way they could freeze a bank account” (Corcoran, 2018). Thus Wainwright has called on greater cooperation from operators of cryptocurrency exchanges and regulators to aid police investigations in order to help solve these debilitating issues before they reach a point of no return. Multiple EU member states have also lobbied for a clampdown on cryptocurrencies due to the potential negative impact that these platforms can perceivably have on global financial stability, as well as the mounting risks facing uninformed investors and the general population from a variety of angles.

Making matters all the more complicated is the fact that criminals are now beginning to abandon the more mainstream, popular crypto options in favor of alternative options (i.e. Monero, Zcash, etc.), cybercurrencies that are even more difficult for authorities to track. This places an even greater burden on authorities to take measures to better combat criminal activity seen in these lesser-known exchanges – a work in progress to say the least, particularly because financial criminals are improving in this still novel craft with each passing day. Additionally, Business Insider reports that the growing number of crypto users with cruel intentions continues to rise, as “organized crime detectives said that even small-time dealers are embracing currencies like bitcoin, litecoin and ethereum as a way of banking drug money without getting caught”, with these individuals now utilizing cryptocurrency ATM’s that are increasing in prevalence throughout London. Each of these factors supplements the already arduous task of trying to thwart this negative trend, thus the battle against financial crime through cybercurrencies appears to be an uphill climb for years to come.


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