One of the main concerns that governments, regulators, and law enforcement have about cryptocurrencies is the use of crypto to move money for illegal purposes. Money laundering and the financing of terrorism have brought about know-your-customer laws for many businesses. Regulators have cracked down on crypto exchanges, fining companies like BitMEX and Binance for not having a sufficient KYC process. While exchanges are subject to strict KYC rules, DeFi smart contracts operate without the same rules. Agencies fighting crypto money laundering without regulators is likely quite common and very much out of sight.
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Crypto Helps Terrorists and Organized Crime Finance Their Operations
A problem for governmental agencies wishing to protect their citizens from criminals and terrorists is hidden financing of their operations. Years ago countries like Panama were infamous for helping people and organizations hide money, avoid taxes, launder drug profits, and even finance terrorist activities. Bit by bit these operations have been shut down by other nations exerting economic pressure. Crypto remains an avenue for individuals and organizations to hide money, move money, avoid taxes, and do bad things. Is it possible to stop any of this?
The Blockchain Does Not Forget or Hide Information
When someone buys or sells cryptocurrencies the blockchain does not necessarily record a name or government ID. Changelly, ChangeNow, and Cex.io allow purchase and sale of Bitcoin without any ID. Binance requires only a photo ID and documentation required for Paybis is minimal. As a rule, those who go this route pay five to ten percent extra. The problem for anyone going this route to hide their transactions is that it is impossible to completely cover one’s tracks in the blockchain. It is transparent and does not forget.
Israel Confiscates Iranian Crypto Assets
An article in the Jerusalem Post states that Israel seized millions in Iran Quds Force and Hezbollah crypto assets. The US, Canada, Israel and others have designated the Iran Quds Force a terrorist organization as well as Hezbollah. A division of the Israeli military working with Mossad, their intelligence agency, pulled off the largest (announced) seizure of terrorist assets ever for their agencies. There is, obviously, no mention of how they did this or any of the techniques involved. Nevertheless, we have seen US law enforcement agencies watch for years for specific wallets to become active and then move on them. The point of this example is that it is not just the hackers around the world who can enter crypto blockchains and seize assets. Governmental agencies can do this as well and not have to deal with difficult legal matters or lawsuits.
An Old Conversation That Applies to Today’s Crypto and Money Launderers
This writer recalls a conversation years ago in the country of Panama. It was with a young man, an employee of a major US bank with branches around the world. He came to Panama every month and spent a week on site “looking at the books.” This was before European regulators forced Panama to make its banking system more transparent. This was when people came to Panama, opened an account, and hid money in what was considered to be an ideal location where there was complete banking privacy. To make a long story short, the young man admitted, when I asked him, that he was able to see all of the bank accounts in their and other banks in Panama. His organization was not interested in someone from Omaha hiding $100,000 from their ex-wife or IRS. They were interested in tracking drug money coming in and out of Colombia and the use of Panamanian banks by terrorists operating out of the Middle East. They commonly did nothing right away with the information that they gained. Rather they waited patiently and acted at a time and manner of their choosing. Is it this writer’s suspicion that this sort of watching and waiting and fighting crypto money launderers without regulations takes place every day in crypto and is only announced when it will not impede current operations.
Fighting Crypto Money Launderers Without Regulators – SlideShare Version