Money laundering: Crypto vs. Fiat

Ever since cryptocurrency became popular, Bitcoin in particular, it was instantly stigmatized as favorite currency used by criminal syndicate in money laundering scheme to hide their criminal activity. Even though Bitcoin was not created to be as such, this characterization of bitcoin and every other cryptocurrency did not stop the authorities from labeling them as such. It reach fever pitch when the website Silk Road was busted for it's criminal activities online, using the internet to sell drugs, arms, prostitutions and every other thing that you may want. But is Bitcoin or cryptocurrency the real "go to" currency in money laundering?

According to records available it is estimated that almost 2-5% of the global GDP, or $800 billion to $2 trillion is laundered annually. The amount of Bitcoin criminally exchange during 2019 was $2.8 billion, equaling 0.9% of the total money laundering in the US and 0.3% globally. The global cryptocurrency laundering for 2023 a significant decrease can be seen as shown in the image below.While centralized exchanges remain the favorite destination for funds sent from illicit addresses, at a rate that has remained relatively stable over the last five years, DeFi protocols growth has attracted funds coming from illicit addresses, this is due to the increasing popularity of DeFi protocols. But due to DeFi’s inherent transparency generally makes it a poor choice for obfuscating the movement of funds, image below proves that point.So how much is the share of cryptocurrency in the global money laundering since data and figures shows crypto share coming from illicit addresses in falling? figure below show's the real score 0.6% globally, that's hardly a drop in the bucket of global money laundering record. The truth is due to the traceability inherent in cryptocurrency it's a no brainer not to use it in criminal activity. The real problem why it's becoming a tool for money laundering is the absence of clear cut unified regulatory policy on the use of cryptocurrency and this is where State's and international monetary institute should focus. Listed below are some the challenges on regulating crypto for AML/CFT.

Regulating cryptocurrency for anti-money laundering (AML) and countering the financing of terrorism (CFT) is challenging due to several reasons:

• Lack of Regulatory Consistency: This is important, Cryptocurrency exchanges operate across borders, making it difficult for regulators to enforce consistent AML/CFT regulations. While some countries have implemented regulations, others have not, leading to regulatory arbitrage where exchanges can move to jurisdictions with weaker regulations.
• Anonymity and Pseudonymity: Cryptocurrency transactions can be anonymous or pseudonymous, making it difficult to identify the parties involved in the transaction. This anonymity makes it easier for criminals to launder money through cryptocurrency transactions.
• Technical Complexity: Cryptocurrency transactions involve complex technical processes that can be difficult for regulators to understand and monitor. Cryptocurrency wallets can also be stored offline, making it harder to trace transactions.
• Lack of Financial Institution Involvement: Cryptocurrency operates outside the traditional financial system, making it difficult for financial institutions to monitor and report suspicious activity. This lack of involvement makes it harder for regulators to detect money laundering through cryptocurrency.
• The emergence of New Cryptocurrencies: The rapid emergence of new cryptocurrencies makes it difficult for regulators to keep up with the changing landscape and develop effective regulations.

These challenges must be addressed by regulators and crypto developers in creating and developing a more robust AML/CFT regulations for cryptocurrency. However, it will take some time to develop effective regulations that balance the need for transparency with the benefits of innovation in the cryptocurrency industry.



Sources
https://withpersona.com/blog/the-most-mind-blowing-money-laundering-statistics-of-2022
https://www.chainalysis.com/blog/2024-crypto-money-laundering/
https://www.linkedin.com/feed/update/urn:li:activity:7110057203197243392/
https://sanctionscanner.com/blog/cryptocurrency-scandals-and-anti-money-laundering-398