Crushing Crypto Crime

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This week saw the EU Commission announce plans to extend Anti Money Laundering (AML) traceability to the world of crypto, beyond its existing scope, to all areas of crypto-asset-management, enabling further protections to be put in place to combat financial crime. This approach aims to create a consistent and singular rule book that applies to all member states to layout clear frameworks and guidelines for the sector.

The move has been welcomed by many, as the lack of traceability for crypto assets and currency has left the door wide open for creative criminal activity to be re-directed to this “opaque” sector. Concerns have been escalating around the proceeds of such activity being used to further fund terrorism across the globe, which can have a devasting impact on countries, economies, and communities. Again, in the area of money laundering, the opaqueness of the sector almost facilitates the movement of “cash/currency” between black market economies into legitimate money supply.

This change in rules also asserts that anonymous crypto wallets will be outlawed under the new regime, but as wallets are anonymous by design, hence the interpretation is, that the legislation is referring more to the provision of third-party services, or services procured through exchanges, under this framework. All the extended legislation introduced will have oversight from the newly formed EU AML Authority (AMLA), which seeks to support collaboration between Financial Intelligence Units (FIUs) across the region.

Any extensions to AML coverage are deemed a necessary step to safeguard the industry, especially as pressure on the Commission has been mounting since the multi country investigation into Danske Bank, where over € 200 billion of suspicious activity passed through a small Estonian branch of the bank between 2007 and 2015 according to Reuters.

According to Europol

“The scale of money laundering is difficult to assess, but it is considered to be significant. The United Nations Office on Drugs and Crime (UNODC) estimates that between 2 and 5% of global GDP is laundered each year. That’s between EUR 715 billion and 1.87 trillion each year. Most organised crime shares a common denominator — the financial motive. Organised crime groups boost their assets and then inject them into the legal economy through different money laundering schemes. Tracing these assets means tracing the networks.”

Also, as we see more headlines from different law enforcement agencies on crackdowns on laundered bitcoin, the sums are becoming significant across this sector.  Recently the UK Met Police reported a £180m seizure of laundered Bitcoin, noting the tremendous efforts that had been undertaken by a number of agencies to help trace funds.  

As much as regulation is sometimes viewed as a necessary evil, it continues to play a much broader role in shielding the financial services industry from the progressively more sophisticated criminal mechanisms to both deceive consumers and defraud institutions.  However, ongoing strategic investments are required by all financial intuitions across transaction monitoring if measures are to be effective, especially with the escalating cost of money laundering globally. The time really has come to regulate more intensively to prevent criminal activity changing the economics of operating cross border payments, which adversely impacts legitimate cross border trade…and that is never a good thing for any economy.

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