Financial Crime World

LIBYAN ARAB JAMAHIRIYA: A Haven for Financial Crimes in the Cryptocurrency World?

Cryptocurrencies and their decentralized marketplace continue to be a fascinating ecosystem for innovation and financial services. With a market capitalization of approximately $1 trillion, 1 cryptocurrencies present an attractive environment for groundbreaking decentralized businesses. However, the very nature of cryptocurrencies also makes them an alluring target for money launderers. Estimated cryptocurrency money laundering transactions reached a mind-boggling $8.6 billion in 2022. 2

Cryptocurrencies: The Perfect Hideout for Money Launderers

Money laundering has always been an artful dance, where criminals seek to exchange their ill-gotten assets for seemingly legitimate ones. The anonymity, speed, and automation of cryptocurrencies make them the ideal tool for money laundering activities. Cryptocurrency exchanges, marketplaces, and wallets enable money launderers to:

  1. Introduce assets into the financial system: Place fiat money into cryptocurrencies or move cryptocurrencies from wallets associated with illegal activity to a clean one.
  2. Obscure transactions: Execute a complex series of transactions to disguise the assets’ origins.
  3. Reintegrate funds: Reintroduce the laundered cryptocurrencies back into the financial system, enabling criminals to purchase real estate, invest in businesses, or inject funds into decentralized finance projects.

Money Laundering Process and Cryptocurrencies

Three-Step Money Laundering process:

  1. Placement: Illegally obtained assets are introduced into the financial system using cryptocurrency exchanges, marketplaces, and wallets.
  2. Layering: Obscure transactions are executed amongst thousands, making it almost impossible to trace the original source of the funds. Additional tools like blenders, tumblers, and mixers are employed to randomly mix funds from various sources.
  3. Integration: After the assets’ origins have been obscured, funds are reintroduced back into the financial system.

VASPs and AML Compliance

Virtual Asset Service Providers (VASPs) that facilitate cryptocurrency trading, exchanges, or safekeeping are subject to the same Anti-Money Laundering (AML) regulations as traditional financial organizations. 3 The Financial Action Task Force (FATF) has mandated these businesses to follow AML protocols, including identity verification and Know Your Customer (KYC) processes for clients. Utilizing transaction monitoring and AML risk scoring systems, VASPs can build effective risk models to minimize their exposure to money laundering activities.

Ensuring Compliance: The Role of RegTech in Cryptocurrency AML

To learn more about how businesses can effectively implement cryptocurrency AML processes, schedule a free product demo with Alessa. Our advanced regulatory technology (RegTech) solutions equip businesses with the resources necessary to navigate the ever-evolving cryptocurrency landscape while maintaining full regulatory compliance.

[1] CoinMarketCap - Crypto Market Capitalization

[2] Chainalysis - 2022 Cryptocurrency Crime report

[3] FATF -Guidance for a risk-based approach to Virtual Assets and Virtual Asset Service Providers