13 Nov 2019
Cryptocurrency is an emerging value transfer system with pluses and minuses for users with legal and illicit funds. No doubt it is growing every day, as evidenced by the facts provided on CoinMarketCap.com. But from a money launderer’s perspective, the greatest majority of cryptocurrencies have limitations for those servicing traditional organized crime.
Buyers of illegal drugs in impoverished inner cities primarily pay their dealers on the street with cash or stolen goods. They don’t surf the dark web to get their heroin from a Mexican cartel, although that marketplace is slowly growing. Ideal value transfer systems for money launderers, and especially major drug organizations, are those that offer stable value (i.e. US dollars, Euros, precious metals, precious stones, commercial goods, etc.).
Imagine being a launderer who operates on a 10% commission and converts a cartel leader’s $5 million to Bitcoin in the midst of a sharp value decrease. Your drug dealing client is expecting something worth 90% of the cash he gave you. A 20% value decrease puts the launderer in a position to have to give up an additional 10% to stay alive. He has a choice: take a $500,000 loss or die. With many investors speculating in crypto, the value is too erratic. A very small percentage of crypto is tied to the dollar, most is not.
Crypto creates another concern. Launderers and major drug organizations want anonymous value transfer systems, which crypto doesn’t offer. Keep in mind that good laundering systems create a false impression of legal income for criminals. If you control a large volume of Bitcoin, about the only false “legal source” you can try to claim for what you’ve got is that you are a long-time Bitcoin miner. Between blockchain technology and other technology that exposes the location of IP addresses linked to crypto transactions, tracing what one might think is a transaction conducted in a fake name is an issue.
That same technology will expose the real source of your Bitcoin. Just ask Hugh Brian Haney, the seller of millions worth of illegal drugs on Silk Road while hiding behind his alias of ‘Pharmville”. He was arrested this year and now faces the better part of the rest of his life in prison, despite trying to disguise the source of his Bitcoin. The feds precisely traced the source of his cryptocurrency to drug deals on Silk Road.
Another concern about crypto lies in the sea of crypto IPO scams luring unsuspecting investors to financial ruin. Couple these issues with the fact that crypto is susceptible to loss through hacking and you begin to appreciate that there are significant negatives about crypto for criminals committing their crimes outside the cyberworld. Beyond all of these issues, countries like China, a hotbed for trade-based and other traditional laundering methods, have occasionally made unpredictable decisions about suspending and sometime outlawing certain crypto transactions.
In time, these issues will begin to stabilize. Presently, crypto is a playground for investors, legitimate peer-to-peer transactions and criminals mostly involved in ransomware attacks, identity theft, hackers, and tax refund fraud. But for now, crypto is a bit of a rollercoaster for traditional drug trafficking and other criminal organizations. Today, their principal interests lie in more traditional and predictable value transfer systems.
As a cartel leader once told me through a stone-cold stare, “We don’t like to be taken, we like to take.” Crypto can’t satisfy that concern for major traditional criminal organizations today.
Robert Mazur is president of KYC Solutions, Inc. and The New York Times bestselling author of ‘The Infiltrator,” a memoir of his life undercover as a money launderer.
RiskScreen: Eliminating Financial Crime with Smart Technology
Advance your CPD minutes for this content, by signing up and using the CPD WalletFREE CPD Wallet