This article briefly:
A new SmartSearch study shows that dirty money is flowing into the cryptocurrency industry at an alarming rate.
Fully 28% of cryptocurrency firms reported an increase in suspicious activity reports (SARs) in the past six months.
Financial professionals use SARs to notify law enforcement of potential money laundering or terrorist financing activity.
A new study shows that dirty money is pouring into the cryptocurrency industry at an alarming rate, with more than a quarter (28%) of cryptocurrency companies reporting an increase in the number of suspicious activity reports over the past six months.
Financial professionals, including lawyers, accountants and estate agents, use Suspicious Activity Reports (SARs) to alert law enforcement of potential money laundering or terrorist financing cases. They provide UK law enforcement with additional perspective on economic crime in the private sector. However, they are not the same as crime or fraud reports. Nor do they constitute a formal criminal complaint.
Cryptocurrency is the preferred method for black money
The new data comes from SmartSearch, which surveyed 500 compliance decision-makers across a variety of industries, including cryptocurrency platforms, gaming companies, real estate developers and banks.
Recent data highlights the ongoing efforts of compliance professionals in combating the growing scourge of cryptocurrency-related money laundering. A recent survey reported by BeInCrypto shows that two-thirds of cryptocurrency companies are concerned about anti-money laundering (AML) violations.
But that’s not the only data point. According to First AML’s survey, 53% of people believe that current practices only partially address the risk of money laundering through cryptocurrencies.
Furthermore, 41% have detected cases of money laundering involving cryptocurrencies. Furthermore, 51% of businesses have faced fines or penalties for not complying with AML regulations.
Criminals see cryptocurrency as a lucrative alternative to traditional money laundering for a number of reasons. First, cryptocurrencies like Bitcoin are pseudonymous and harder to trace than bank transfers of fiat currencies.
Cryptocurrencies also allow large amounts to be traded quickly and easily and can be accessed from anywhere in the world. In addition, many virtual asset service providers (VASPs) lack the structure or resources to effectively monitor for illegal activity.
In Chainaanalysis’ latest Crypto Crime Report, we learned that 2022 was a record year for cryptocurrency money laundering, with $23.8 billion worth of funds “laundered” using cryptocurrencies.
This is a 68% increase from last year. However, the same report also states that less than 1% of all cryptocurrencies have any connection to illegal activity.
Binance Under Investigation in France for “Severe Money Laundering”
Martin Cheek, managing director of SmartSearch, believes criminal gangs are targeting cryptocurrency companies to exploit weaknesses in their compliance processes, particularly when it comes to the use of flawed manual customer checks.
“These common practices, such as asking for ID, are no longer sufficient,” he explained. “Not only do they fail to meet know-your-customer ( KYC ) and anti-money laundering standards, but they can also open the door to identity theft.”
Cheek continued:
"The quality of forged documents has evolved to a level of sophistication that makes identification increasingly difficult. The Home Office's own guidance on checking forgeries of official documents lists 24 potential points of failure, many of which require specialist knowledge to spot."
The specter of money laundering has haunted the cryptocurrency industry as it attempts to present a legitimate and compliant public image. On June 16, French authorities announced that they were conducting a “serious money laundering” investigation into Binance, the world’s largest exchange.
The European Union is currently negotiating on including VASPs in its anti-money laundering regulations.
Remember, a SAR is not a crime or fraud report.