As we discover, crypto crime accounts for a minuscule amount of illicit activity. Likewise, proceeds from crime represent a tiny fraction of the crypto marketplace.
So, the next time someone nags you about your enthusiasm for crypto or gives you the side-eye, come prepared. Arm yourself with the factual ammunition included in this article to stand your ground. Criminals favor fiat.
“Honey, have you heard? Joe uses cryptocurrency, he must be up to something dodgy.”
This argument is a false dilemma. The implied consequence is that people who support cryptocurrencies are criminal. Or, they posses a value system which aligns with illegal activity. There is no middle ground.
Pie in the Sky
For those who think that the US dollar and other fiat currencies are clean money, you are mistaken. Up to $2 trillion worth of dirty money enters the global financial system each year. In comparison only $5 billion in dirty cryptocurrency penetrated the 2019 crypto ecosphere.
Put this into perspective. Dirty fiat accounted for up to 5% of the global GDP in 2019. Whilst crypto crime accounted for only 0.2% of the cryptocurrency market (UN Office Drugs and Crime, CipherTrace, Statista).
Money Laundering Cycle
Interestingly, it is the banking systems themselves who are integral players in the money-laundering world. Financial organizations push dirty fiat deeper into the system. They use a three-step process known as placement, layering, and integration. Money deposits get washed through transfers, offshore accounts, fake invoices, and shelf companies. Then, cleaned fiat acquires new assets and investments.
It seems the Banks are untouchable.
Moreover, the International Consortium of Investigative Journalists (ICIJ) found many major banks play crucial roles in organized crime, terrorism, fraud, and political corruption. Prominent banks including JP Morgan, HSBC, and Deutsche Bank funnel dirty money through their system. Despite repetitive penalties, settlements, and threats of prosecution their efforts continue unabated.
Bitcoin and many alt coins use a ledger system which serves two purposes: 1. there is an open record of transactions; 2. transactions are immutable. Each irreversible payment becomes documented and timestamped. Thus, public ledgers make ‘placement’ and ‘layering’ difficult. There is no way to cook the books.
Sure, some criminals slip through the cracks and integrate laundered cryptocurrency. They may use transaction mixers — a.k.a. tumblers or privacy coins like Monero, DASH, or Zcash to throw authorities off their trail. Privacy coins give users the ability to obfuscate payments and wallets. But, when outlaws want to withdraw their winnings in fiat they get caught-out.
Privacy on Exchanges
Criminals can try to convert crypto to fiat with peer-to-peer (P2P) deals. Yet, most prefer to filter their revenue from crypto crime through an exchange or third party wallet. For the majority of exchanges and wallets privacy is not a guarantee. If legitimate these services require anti-money-laundering (AML) and know-your-customer (KYC) processes with identity verification.
Many exchanges cooperate with government officials and block tumbled transactions. On top of that, fraudulent exchanges and tumbler sites are under close scrutiny by financial watchdogs. When local law enforcement detect unlawful activity they action fines or closures of such sites.
In addition, the US Treasury and Department of Justice (DoJ) monitor and confiscate crooked wallets. Just this November the US DoJ impounded 70,000 Bitcoins connected to the infamous Silk Road black market. In 2015, US Marshalls auctioned off several thousands in BTC proceeds forfeited from another Silk Road wallet (BBC).
Crypto Cyber Crimes
Ponzi schemes, blackmail, scams, and ICOs account for over 80% of crypto crime. Scams alone brought in the bulk of dirty cryptocurrency in 2019, at $4.3 billion worth. When law enforcement adapt prevention measures against these types of crypto crime, the thieves readjust their tactics. It’s a cat and mouse game.
For example, the huge OneCoin ICO con finally came to an end in 2019, after nine years of operation. Financial institutions refused to take action against the digital assets, allowing OneCoin’s scam to resume. Education packages were sold which included tokens to mine OneCoins.
Unfortunately OneCoin was not even a cryptocurrency, had no real infrastructure, and was nothing more than a pyramid scheme. More than 3 million users lost around $5 billion. Dr. Ruja “Cryptoqueen” Ignatova, who headed the cult-like coin offering has been missing since 2017. In late 2020, Ruja’s lawyer, Mark Scott, was charged with money laundering, bank fraud, and was disbarred.
Dark Web Markets
Touted as havens for delinquents, dark webs sell drugs, prostitutes, hitmen, and pornography. Purchases are apparently made with cryptocurrency. Yet, Chainanalysis found that crypto sales on the darknet amounted to a mere 0.8% of their transactions in 2019.
DARK WEB MARKETS ACCOUNT FOR LESS THAN 1% OF CRYPTO CRIME.
Besides, customers are reportedly wary of purchasing with electronic cash. It seems purchases linked to the dark web, aside from drugs, are in hard cash after P2P negotiation. This is because insider scams, hacks, and shutdowns of marketplaces happen. Transaction ledgers may reveal customer identities, and funds could be stolen or seized.
As cryptocurrency popularity grows, its underworld will too. Although, crypto crime only represents a very small portion of foul play. Furthermore, technology like the blockchain exposes illicit actors and activities. Law enforcement and governments are on the tail of scammers and crypto criminals. Also, exchanges and wallets adopt stricter AML/KYC protocols to weed out dirty coins.
Criminals are not the product of cryptocurrencies.
Lastly, it seems international crime proceeds are overwhelmingly fiat. Financial institutions inexcusably assist the financing of global corruption, organized crime, and fraud. They are experts at laundering money.
It’s obvious — criminals prefer cash over crypto.