For years anonymous crypto-currencies have been criminals’ favorite method of hiding and laundering their money. That could all be about to end. Mike Orcutt explains at the MIT Technology Review that the Financial Action Task Force, a global standard-setting group, has put cryptocurrencies in its crosshairs. The group wants to clamp down on cryptocurrencies being used as a way to launder money. Orcutt reports:
One of the biggest knocks against cryptocurrency has always been its status as a refuge for tech-savvy criminals. Even as some bigger players—particularly exchanges that handle many billions of dollars in crypto-wealth each day—have gone out of their way to play nice with regulators, the image persists, in part because some crypto firms have evaded regulators by moving to jurisdictions that are less strict.
But the end of the lawless era may be nigh. A new set of global anti-money-laundering rules aimed at cryptocurrency exchanges has been handed down by the Financial Action Task Force, an intergovernmental organization that sets standards for policing money laundering and terrorist financing. The rules, which call on exchanges to share personal information about their users with each other, are controversial. Many cryptocurrency enthusiasts think the privacy that drew them to the technology could evaporate. On the other hand, complying with the rules is likely to make the industry more attractive to mainstream financial institutions and users. In other words, cha-ching.
The cryptocurrency market is small and immature compared with markets for traditional stocks and bonds, but the criminals trying to profit from it are among the most sophisticated in the world—and they are reaping bigger and bigger rewards. “Unfortunately, we keep seeing the criminal numbers go up and up and up,” says Dave Jevans, CEO of blockchain analytics firm CipherTrace, which is developing an anti-money-laundering product for exchanges. According to a new report published by the company, thieves and scammers took an estimated $4.26 billion from cryptocurrency exchanges, investors, and users in the first half of 2019. “All of that stuff has to be laundered out,” Jevans says.
What draws criminals to cryptocurrency is the capacity for anonymous, peer-to-peer value transfer. Technically, most cryptocurrency systems are pseudonymous—users are identified publicly, but only by a string of random numbers and letters. Since every transaction is recorded on a public ledger, criminals resort to a range of tactics, including using multiple addresses and exchanges, to cover their tracks as they move ill-gotten money around.
In regulated jurisdictions like the US, Japan, and EU, exchanges—the bridges between the traditional financial system and the cryptocurrency world—are already required to verify the identities of their users, a process commonly called “know your customer.” But many exchanges around the world have lax policies that allow people to move money or cash out without identifying themselves.
The “travel rule”
In June the Financial Action Task Force (FATF; pronounced “fat F”) published a much anticipated, technically nonbinding guidance detailing expectations of how its 37 member jurisdictions should regulate their respective “virtual asset” marketplaces. Here’s the contentious part: whenever a user of one exchange sends cryptocurrency worth more than 1,000 dollars or euros to a user of a different exchange, the originating exchange must “immediately and securely” share identifying information about both the sender and the intended recipient with the beneficiary exchange. That information should also be made available to “appropriate authorities on request.”
Besides deterring would-be money launderers, this makes it possible to blacklist certain individuals who are subject to economic sanctions, as well as entities like terrorist organizations. It’s essentially a crypto version of a US banking regulation commonly called the “travel rule,” which imposes a similar requirement on traditional financial institutions (though the threshold is $3,000). In the US, crypto exchanges have always been subject to this rule, according to a recent guidance from the Treasury Department’s Financial Crimes Enforcement Network. The agency just hasn’t started enforcing it yet.
I’ve shared my thoughts on bitcoin and Blockchain technologies with you, and written to you about the future possibilities of crypto.
if the task force’s recommendations are adopted, and crypto is clamped down, there could be major changes in the prices for crypto currencies, and future demand.
