The complexity associated with using a cryptocurrency in money laundering was revealed in April 2018, when Europol shut down a drug trafficking ring using cryptocurrencies and credit cards to launder more than €8 million through a Finnish crypto exchange. Europol arrested eleven people for laundering funds from Spain to Colombia. The scheme began when the alleged criminals first used credit cards to withdraw the money from Colombia, then converted that cash into cryptocurrency and then into Colombian pesos through the Finnish crypto exchange.
In the aftermath of the scam Europol indicated that it planned to strengthen its efforts to police criminal activities carried out using cryptocurrencies. To date, Europol has implemented “specialized training courses to assist law enforcement officers in identifying the use of cryptocurrencies by organized crime networks.”
The response by governments to cryptocurrencies has varied among governments. Concerned by the volatility and high levels of scams linked to cryptocurrencies, China banned exchanges and initial coin offerings, while Japan halted the operations of several exchanges in 2018 after one of the biggest licensed exchanges was hacked. In the U.S. cryptocurrency trading is allowed, but many in the financial world are not enamored of it. Indeed, the Chairman of the U.S. Federal Reserve, Jerome Powell, stated before the House Financial Services Committee in 2018, “They are very challenging because cryptocurrencies are great if you’re trying to hide or launder money, we have to be very conscious of that.”
Money laundering has been around for a long time; cryptocurrencies are the latest chapter in the story—a financial innovation that offers secrecy. It is gaining ground in global financial markets for both legal investors and those looking for a new option to launder their ill-gotten gains. This story is just beginning and the tale of money laundering is now likely to work its way through the new centers opening up for business, as much as it did for European and Caribbean offshore financial centers. Big scandals are coming. It is only a matter of time as the new means are now the new battleground.
Scott B. MacDonald is chief economist for Smith’s Research and Gradings.