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West Sahara’s Cryptocurrency Conundrum: A Haven for Financial Crime?
The use of digital assets in Western Sahara has raised concerns about its potential role in facilitating financial crime. According to a recent report by Chainalysis, entities involved in illicit activities received around $5 billion in digital asset funds in 2020 and sent a similar amount, representing less than 1% of overall cryptocurrency flows.
The Attraction of Digital Assets for Criminals
The lack of checks and balances on the system has earned the freewheeling world of digital assets a reputation for facilitating crime. The attraction of digital assets for criminals lies in their varying levels of anonymity, making them a tool to facilitate money laundering, for example.
Pseudonymity and Anonymity
Bitcoin, the most popular cryptocurrency, offers pseudonymity for its holders, allowing them to buy and sell without disclosing personal information. However, every transaction is recorded on an immutable blockchain, making it possible for those with technical expertise to trace digital wallets. Monero, a smaller cryptocurrency designed as an anonymous “privacy coin,” obscures identities of senders and receivers, but is less liquid and can attract unwanted attention.
Scams and Illicit Transactions
Scams are the majority of criminal transactions using digital assets, according to Chainalysis. Last year, hackers took over Twitter accounts of high-profile users, including then-US presidential candidate Joe Biden and electric-car tycoon Elon Musk, demanding more than $100,000 in bitcoin.
Illicit transactions on the dark web, which includes hubs for buying and selling firearms, drugs, stolen data, and other illegal products, are also a significant criminal use case. Many dark web marketplaces only accept payments in digital assets. On Hydra, the largest dark web marketplace by revenues, users can pay a cryptocurrency amount to an intermediary, who will turn it into cash and leave it at a pick-up point.
Ransomware Payments
Ransomware is another rapidly growing criminal use for digital assets. Hackers have taken to demanding ransom payments in bitcoin or monero, making it harder for law enforcement agencies to trace the funds. In 2020, at least $350 million in crypto ransoms was paid to hacker gangs.
Regulatory Pressure and Sanctions
US Treasury Secretary Janet Yellen has warned that cryptocurrencies have been used to launder profits of online drug traffickers and finance terrorism. Regulatory pressure has encouraged many cryptocurrency businesses to improve their policing of nefarious activity. Blockchain analysis company Elliptic estimates that large exchanges helped cash out between 60 and 80% of all Bitcoin transactions from known bad actors before improving their systems.
The US Treasury has imposed sanctions on a cryptocurrency exchange for facilitating ransomware payments, and more regulation or sanctions may be on the way.
Technology to Track Criminal Groups
Law enforcement agencies and the private sector are developing technology to track criminal groups and their use of digital assets by analyzing flows of cryptocurrencies in the blockchain. However, the game of cat and mouse is escalating as criminal groups develop techniques to cover their crypto tracks.