By far, cryptocurrency has proven to be one of the most efficient ways of completing fast and low-cost transactions. The rise of crypto into a global sensation has birthed a huge debate about its potential to foster illegal activities and most especially money laundering.
Despite how cryptocurrency is fast growing to go mainstream and ensure easy accessibility, there are growing concerns that it is a haven for fraudsters. On the flip side, some argued that crypto is a better and transparent option compared to the existing system in the traditional financial system.
This article aims to assess the relationship between cryptocurrency and money laundering and examine their risk and ways regulatory intervention can help curb such menace.
Is Crypto A Money Laundering Vehicle?
Money laundering implies the diversion of the origins of illegally obtained funds. This type of transaction involves moving money gained from illegal activities to make it look like a legal earning.
Meanwhile, crypto as a result of its heavy emphasis on decentralization and anonymous transactions can potentially be a new means for such illicit money wire. Consequently, this is a result of how blockchain transactions are quite difficult to trace. While all data and transactions are publicly recorded, the individuals behind each address are usually unknown.
Hence, this led to the conception that this high degree of anonymity made crypto a perfect vehicle for money laundering. To an extent, this argument has a valid basis and it underlines the role of regulation in the crypto and blockchain landscape.
How Proper Regulation Can Combat The Use Of Cryptocurrency For Money Laundering
Without any regulating authority, crypto comes as a perfect fit for illicit activities most especially money laundering. Despite how most cryptocurrencies including Bitcoin and Ethereum run on a public blockchain and data are recorded publicly, the transparency comes in two dimensions.
From the first part, the secrecy crypto is offering makes it ideal for money laundering. On the flip side, the public documentation of transactions on the blockchain can also help law enforcement agencies to track criminals.
Therefore, in the presence of regulatory oversight, crypto cannot only become allergic to illegal transactions but also help enforce anti-money laundering efforts.
Governments and regulatory agencies across the globe are now introducing numerous policies to combat the use of crypto for illegal activities. Some of these policies are Anti-Money Laundering (AML) and Know Your Customer (KYC) regulators have mandated for virtual assets service providers.
Accordingly, these measures demand that most crypto platforms verify the identity of their subscribers. Similarly, the regulation mandates that virtual assets service providers report suspicious money movement to the appropriate authorities.
By extension, it is now essential crypto platforms cooperate with government agencies whenever the need arises. Thanks to these measures, the likelihood of the use of crypto for money laundering and other illegal use cases is slim.
In today’s market, crypto has been linked to fewer money laundering cases compared to traditional fiats. According to these studies, criminals prefer to use traditional fiat for illegal activities due to how it requires less sophisticated technology.
The evolution of crypto and blockchain technology has made it quite difficult for bad actors to launder money with virtual assets. Therefore, as the industry continues to grow, it is now the responsibility of project teams and regulatory bodies to provide a secure and conducive market for investors.
Conclusion
It would be disastrous to conclude that crypto is a vehicle of money laundering. This narrative has diverted the attention of relevant bodies to how crypto can support a financial system.
While it is an obvious fact that crypto can be a means to launder money, it is important to embrace a balanced view. Crypto has proved useful for enhancing financial inclusion and offering the unbanked population unrestricted access to some banking services.
More so, dwelling on the negative aspects of crypto may obscure some of the innovations crypto can bring to a financial system. Some of the perceived weaknesses of crypto like decentralization and anonymous transactions can also support a financial system.
Lastly, both regulators and market participants in the crypto space must work together to curb the use of digital assets for money laundering.