Legal Implications of Cryptocurrency in Money Laundering

Posted on Saturday, June 1st, 2024 at 9:00 am    

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In today’s complicated global climate, cryptocurrency can be considered a fad and a new direction for world currency. Unfortunately, cryptocurrency is quickly emerging as a powerful money laundering tool that can channel funds through numerous addresses, businesses, and destinations, concealing the illegal origin of the money.

Cryptocurrency gets a bad rap and is not always used for nefarious purposes. At Bruno Law Offices, our premier criminal defense team serving the Central Illinois area wants to help you understand the legal implications of cryptocurrency in money laundering schemes.

What Is Cryptocurrency?

The technological age has brought us a new type of currency called cryptocurrency. Cryptocurrency is a form of decentralized, digital money. The most popular forms of cryptocurrency are Bitcoin and Ethereum, but individuals can purchase all sorts of cryptocurrency, such as Dogecoin, Solana, and Shiba Inu.

Since it is a decentralized currency, cryptocurrency is not managed or backed by a central authority to maintain or stabilize its value. It is based on blockchain technology, which means crypto transactions get recorded in “blocks” linked together by a chain of previous cryptocurrency transactions.

How Is Cryptocurrency Used for Money Laundering?

Cryptocurrency is popular in money laundering schemes. As the United Nations points out, cryptocurrencies are anonymous at their point of creation. You can quickly and easily create an account and instantly transfer crypto elsewhere. Many scammers use crypto to create large-scale money laundering schemes that can manage thousands of transfers, quickly and efficiently concealing the original source of the money. The process is even easier since most cryptocurrencies are decentralized and unregulated.

Some of the most common money laundering crypto schemes in use include:

  • Offshore transactions to obscure the illegal origin of money
  • Smurfing, where large sums of money are split into small amounts and sent via multiple crypto transactions
  • Mixing is when services are used to hide the transaction history of a cryptocurrency
  • Exchange hopping occurs when individuals use multiple crypto exchanges to transfer funds across numerous platforms, making it almost impossible to trace

The methods for using cryptocurrency in money laundering schemes can change almost as fast as technology, meaning there are an ever-growing number of ways that parties can use crypto to launder money.

What Is AML?

Governments worldwide are slowly coming to understand how money laundering in the cryptocurrency space affects both fiat currency and cryptocurrency markets. To help combat potential criminal activity, some regulatory agencies are enacting anti-money laundering legislation or AML. AML policies are supposed to prevent criminal entities from unlawfully obtaining crypto and turning it into cash.

Unfortunately, the global nature of crypto transactions complicates establishing uniform AML requirements across jurisdictions with wildly different laws and regulations. The foundation of cryptocurrency rests on privacy and anonymity. Those using peer-to-peer transactions to move crypto funds have a certain level of privacy and can bypass know-your-customer (KYC) requirements used by banks and other centralized financial institutions. KYC guidelines require financial professionals to verify a customer’s identity and evaluate the risks of maintaining a relationship with that customer.

Many in the financial space suggest that crypto operators adopt and implement KYC regulations to ensure that individuals comply with state, federal, and global regulations and combat money laundering and illegal activity. Regulators could more easily identify red flags associated with specific types of crypto transactions. AI could potentially help implement money laundering detection tools and deter criminal activity.

While some exchanges have moved toward KYC measures, others say it goes against the original purpose of cryptocurrency. These non-compliant exchanges continue to remain targets for illegal activity and money laundering.

Cryptocurrency in Illinois and Legal Implications of Cryptocurrency in Money Laundering

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Illinois has joined other jurisdictions in adopting the Uniform Regulation of Virtual Currency Business Act (URVCBA). The URVCBA helps give states a regulatory framework for companies that want to engage in virtual currency business activity. At the federal level, the Securities and Exchange Commission and Commodity Futures Trading Commission monitor and regulate financial activity in the cryptocurrency industry.

Businesses in Illinois can accept payments in cryptocurrency. However, these businesses must comply with all state and federal regulations involving money transmission and anti-money laundering statutes. Individuals in the state charged with money laundering involving crypto can face significant legal implications like fines and prison time. Money laundering offenses are felonies and, depending on the value of the money laundered, can result in steep fines and prison time.

Contact an Experienced Illinois Criminal Defense Team Today

Dabbling in cryptocurrency can be exhilarating. Find yourself on the wrong side of a money laundering scheme, and you can face life-changing legal consequences. If you’ve been charged with money laundering or cryptocurrency offenses, you need a skilled Illinois white collar crimes defense attorney immediately. Let Bruno Law Offices protect your legal rights and help you navigate the complicated Illinois criminal justice system.

Call our office at (217) 328-6000 or contact us online to arrange a confidential legal consultation.