What is crypto capital and money laundering?
Cryptocurrency has been gaining traction in recent years as a viable financial instrument. But along with the potential for hassle-free transfers on top of large profits, it also carries the risk of enabling money laundering. In 2021, an estimated $8.6 billion was laundered through cryptocurrency, a 30% increase from 2020. Centralized exchanges, which accounted for 47% of transactions, were the most common way to send and receive illicit cryptocurrency.
Unfortunately, this trend has only accelerated in 2022 as money laundering through crypto mixers such as Tornado Cash is becoming increasingly commonplace. It has never been more important to understand and evaluate the risks associated with crypto capital, how it can be leveraged by bad actors for money laundering, and what steps concerned parties can take to mitigate the risks. By extension, the need for robust crypto AML compliance software has never been greater.
Use of Crypto Capital in Money laundering
The use of cryptocurrency for money laundering has escalated in recent years, posing a serious threat to crypto asset holders and crypto businesses worldwide. The crypto ecosystem substantially weakens if illicit activities are conducted on crypto platforms, as these activities taint the integrity of crypto assets.
The significant rise in money laundering through cryptocurrency further erodes the trust of crypto users, many of whom rely on crypto assets as a safe haven for their savings. As crypto capital continues to be misused for illegal activities, it is essential that crypto businesses and exchanges work together to ensure that their platforms are not used for money laundering purposes.
Some interesting findings involving use of cryptocurrency for money laundering are:
1) The increasing use of cryptocurrency has led to a rise in anti-money laundering risks. In 2021, losses from crimes related to cryptocurrency increased by 79%, driven by an increase in theft and scams.
2) Anonymous transactions between buyers and sellers allow for these crimes to take place without detection. Data shows that scammers obtained a record $14 billion in cryptocurrency in 2021, largely through the use of decentralized finance platforms.
Only by adhering to industry best practices like utilizing AML compliance software, complying with financial regulations, and implementing stringent anti-money laundering measures can crypto businesses and the broader crypto economy thrive without the risk of criminal activity.
Money Laundering Prevention Through Crypto Capital
Crypto capital can be used to monitor and trace transactions for money laundering prevention. By implementing measures like Know Your Customer (KYC), identifying high-profile exposed persons, and employing AML software into their crypto ecosystems, crypto firms are able to better identify suspicious behavior, detect suspicious payments, and flag any ill-generated gains. An increased focus helps crypto firms protect themselves, their users, and the crypto ecosystem as a whole. This is a critical measure for institutes involved in crypto business to take in order to fortify their anti-money laundering programs and prevent illicit activities from taking place.
