Black Markets, Fraud, and Money Laundering: How Much Are Cryptocurrencies Used For Crime?

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Cryptocurrency Crime

BY DANICA SERGISON

At the FinTech Canada conference this August, leading cryptocurrency trial attorney Brian Klein gave an excellent overview of how cryptocurrencies have been used for illegal purposes and what law enforcement officials are doing to crack down on it.

Known for representing high-profile clients like Bitcoin early-adopter Erik Voorhees, Brian Klein is the founder and chair of the non-profit Digital Currency and Ledger Defense Coalition (DCLDC) and the chair of the American Bar Association’s blockchain technology, digital currency, and ICO national institute.

Digital Currencies

In his talk, Klein points to the law enforcement efforts and litigation around the Silk Road as an early example of crime with a cryptocurrency element.

At the time, the closure of the online black market and related arrests made headlines worldwide.

But how have things moved on in 2018?

Cash (not Crypto) is Still King in Criminal Activity

In criminal law, cash is still king.

While cases like the Silk Road made sensational headlines, cryptocurrency rarely plays a truly innovative role when it comes to more traditional criminal activity. 

Cryptocurrency may offer advantages for long-distance transactions and online shoppers, but most criminal acts today are still paid for in cash. 

The crypto element may add a modern flair and conjure images of shadowy figures in Guy Fawkes’ masks but, for the most part, digital currencies remain a payment method rather than a new frontier in criminal acts.

Cryptocurrencies Are the New Swiss Bank Account: Money Laundering and Tax Evasion

You might still see movies where bank robbers demand that funds be wired to a Swiss bank account, but when it comes to money laundering and hiding assets, cryptocurrency has increasingly replaced the wiring of funds to jurisdictions that favor banking secrecy. 

Blockchain Future

A key advantage of cryptocurrency is that it’s not tied to a single jurisdiction or set of laws – unlike Switzerland, which tightened its banking regulations after a large tax evasion investigation in 2008.

With cryptocurrency, there’s also no need to rely on intermediaries to handle transfers. And while a bank can be forced to turn over someone’s account information, there is no central authority for the Bitcoin system.

However, as noted in Klein’s talk, most current digital currencies operate on a public, permanent ledger. Bitcoin, for example, isn’t fully anonymous as many believe. Each transaction can be tracked, analyzed and de-anonymized — if the authorities can link a wallet address to a particular criminal – now or in the future.