Most financial crimes are still committed with fiat, not cryptocurrencies, according to US Treasury Department report.
This month, the National Money Laundering Risk Assessment report from the US Treasury Department was released, which describes the problem of money laundering and how this type of crime has been developing over the past three years.
The report also talked about cryptocurrencies. The conclusion notes that indicators such as the number of users and the market capitalization of digital assets have increased significantly since the last time the study was conducted (in 2018).
Fiat is used in money laundering more than crypto
Also important to the crypto community, the report states that fiat currency and traditional networks still account for more financial crime than cryptocurrencies. The US Department of the Treasury claims that virtual assets are used for money laundering much less often than fiat or other traditional methods.
Despite this, the use of virtual currency to buy drugs online, launder criminal funds and evade sanctions has increased over the past three years. A report from the US Department of State and a Crime Report from Chainalysis state similar things regarding the increase in the use of cryptocurrencies in financial fraud.
For example, a Chainalysis report states that more money was sent to criminal blockchain addresses in 2021 than in any other year.
Paradoxically, Chainalysis also found that in 2021, the share of money in cryptocurrency that was obtained illegally is only 0.15% of all transactions, having decreased from 0.62% in 2020 and 3.37% in 2019.
More recently, after Russia launched a military operation in Ukraine, Western governments imposed strict sanctions on Russia, but they soon became concerned about the possibility of individuals using cryptocurrencies to circumvent sanctions.
P2P transactions and anonymous coins complicate investigations
Fraudsters and money launderers are increasingly conducting peer-to-peer (P2P) transactions to circumvent AML/CFT methods, preferring to operate their own cryptocurrency wallets rather than transferring cryptographic keys (an important combination of numbers that allows blockchain transactions) to crypto exchanges.
According to a US Department of the Treasury report, the use of anonymous coins such as Monero hinders law enforcement efforts trying to trace illegal money flows. Criminals can also transfer funds using crypto exchanges, which use mixers and tumblers to anonymize the source of funds.
The number of ransomware has increased
The COVID-19 pandemic has impacted the number of ransomware programs that attackers use to encrypt sensitive information of victims and only decrypt it after paying a ransom.
The required ransom is often expressed in cryptocurrencies, especially bitcoin. Before being cashed out, the funds are routed through foreign cryptocurrency exchanges, which have few methods to combat money laundering.
According to a US Department of the Treasury report, the number of ransomware has increased over the past three years. Their attacks gained momentum in 2020 when Chainalysis reported more than $406M paid out to cryptocurrency trackers.
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