KPMG have published an 86-page study on digital crime, including a feature article on cryptocurrencies, entitled “Money Laundering and Financial Crime in the Cryptocurrency Age”. The article outlines the ways in which criminals use crypto for criminal purposes, and what financial institutions can do to stop it.
How Do They Do It?
As outlined in the document, criminals purchase their crypto at digital exchanges, using straw men and pseudonyms. They then exchange primary coins for altcoins, before using “mixing” services to swap addresses, or: “Another tactic uses false receiving addresses to re-route transactions to backup addresses, also breaking the audit trail. Mixed primary coins are then transferred to an advance digital exchange to purchase privacy coins.”
They then build up layers of coins, exchanges and digital addresses to break the audit trail, before withdrawing the money by re-converting to primary coins, then basic currency.
How Can it Be Stopped?
Some of the possibilities outlined by KPMG include AML procedures, including robust KYC. Also, ongoing transaction monitoring, stricter regulation, third-party ID providers and using blockchain as an effective means of eradicating the possibility of fraudulent activity. Ultimately, their message is: “Regulators must develop more up-to-date, focused standards that deal with the challenges of this rapidly evolving area. And financial institutions must take responsibility for ensuring their systems and processes are capable of mitigating the risks insofar as possible.”
Image Credit: Deposit Photos
Can money laundering be completely eradicated? Let us know your thoughts in the comments section.