Discovery of $4bn of Stolen Cryptocurrency: Need for Money Laundering Measures

Discovery of $4bn of Stolen Cryptocurrency

Earlier this year, the US Department of Justice recovered stolen bitcoin worth $4 billion. This massive haul of cryptocurrency was stolen from the platform Bitfinex back in 2016 by fraudsters who processed upwards of 2000 unauthorized crypto transactions to complete the scam.

The two accused fraudsters, Ilya Lichtenstein and Heather Morgan, were arrested on February the 8th and face both money laundering and conspiracy to defraud the United States charges and could serve up to 25 years in prison. Here we will discuss the importance of understanding anti-money laundering measures and the future of cryptocurrency security.


Importance of using AML Measures

The newly formed National Cryptocurrency Enforcement Team of the US Justice Department seized the couple's assets and brought the conspiracy charges to commit money laundering against the pair. Although this case has drawn a lot of attention and made the headlines across the globe, the couple are far from alone in their money laundering attempts. Chainalysis report says that scammers had laundered more than $33 billion worth of cryptocurrency between 2016-2020 and a peak of $10.9 billion in 2019.

Crypto money laundering works just as you might imagine, sending dirty cryptocurrency through an exchange and trading it for another cryptocurrency such as Bitcoin or Ethereum. Next, a scammer simply transfers this to other accounts, including fiat accounts. Once they have laundered the funds, a scammer can easily use the money or crypto as they like.

AML Measures

If you are new to cryptocurrency or interested in offering it as a payment method for your business, it may feel a little daunting when you see the amount of attention and regulation being implemented regarding anti-money laundering (AML) compliance. It can be challenging to keep up with all the changes in crypto rules and regulations, especially for those operating in multiple jurisdictions. You need to have a clear framework or policy for your AML procedures and methodology.

As outlined in the comprehensive SEON tips on how to remain in compliance with AML, the first step is to do thorough customer due diligence. Including confirming the identity documents of each individual and examining whether someone is a politically exposed person and, therefore, considered a higher risk, as well as screening if an individual or business has been issued a sanction or penalty by law.

There is a growing emphasis on the importance of using AML measures and protocols, especially when it comes to decentralized finance or DeFi. Unfortunately, there are many appealing aspects of DeFi for criminal organizations looking to launder money, including the speed at which transactions can be processed and the lack of fees related to more traditional methods of laundering. North Korea has come into the spotlight for this reason, with hackers having stolen some $840 million in hacked DeFi.


The Future of Cryptocurrency Security

The good news is that more anti-money laundering restrictions are now being taken to counteract scammers and criminals within the crypto markets. Across the world, regulators and lawmakers are identifying and targeting cryptocurrencies and the exchanges associated with them to implement security measures to protect against money launderers and other crimes.

Recently, the European Parliament's Committee on Economic and Monetary Affairs introduced regulations to validate DeFi wallets that would apply to transfers of 1,000 euros or more. These measures are being driven forward to enable tracking and tracing of all transfers so that identifying those sending and receiving assets is transparent. The motive behind this new legislation is that “Crypto-assets' transfers would need to be traced and identified to prevent its use in money laundering, terrorist financing, and other crimes.”

However, there has been some pushback from the crypto community in Europe, seeing these new proposed regulations as a reversal, making exchanges less secure and onerous, going against the whole ethos of decentralized cryptocurrencies.


Traditional Banks v Cryptocurrency 

Massive advancements have been made in recent years with blockchain technology, and crypto is being used more than ever to purchase goods and services, narrowing the gap between the types of finance. But can crypto and the blockchain compete with or even replace the traditional banking sector? Firstly, the main difference between conventional currency or fiat and cryptocurrency is that crypto is decentralized and has not been controlled by a bank or government.

Traditional Banks v Cryptocurrency 

As discussed in our Crypto and Bitcoin blog post, El Salvador was the first country in the world to adopt cryptocurrency as a legal tender, and the Central African Republic has followed in its footsteps. The most crypto transactions per annum are recorded in the United States, but Nigerians are said to be the world's most significant cryptocurrency users.

The appeal of cryptocurrency for most is the ability to control your own finances without paying fees. Another outstanding advantage of crypto over traditional banking systems is the ability to potentially make money, as opposed to the tiny interest rates offered by banks for your savings. DeFi protocols allow for peer-to-peer lending with much higher earnings potential.

With decentralized finances, you can transfer practically anywhere in the world instantaneously, make a direct deposit and now even use a debit or credit crypto card, making it more appealing than ever. Another advantage with DeFi is the ability to lend without credit checks, as long as you have cryptocurrency collateral. It is safe to say that crypto will increasingly become integrated with traditional banking systems.

More companies are offering customers the option to pay for goods and services with cryptocurrency. For example, luxury brand Gucci has just started accepting crypto, such as Bitcoin and Litecoin, as payments in their American stores. Many other companies are taking the same steps, making crypto more mainstream. The decentralized protocols are expected to become a viable alternative for transactions, investments, and cross-border transfers with minimal fees.

Increased cryptocurrency regulations seem unavoidable at this stage. However, there is still optimism that virtual currency will continue to be adopted as a mainstream form of currency for everyday transactions, investments, and business. The future is uncertain, and only time will reveal the impact of new regulations within the cryptocurrency markets and whether these will help bridge the gap between traditional banking and crypto.

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