Is Crypto Common in Money laundering? AMLYZE Expert Weighs In

• Misinterpreted data linking Hamas to millions in crypto funding and the recent Binance-DOJ settlement have rekindled debates over the extent of crypto use in illicit activities.
• A financial crime prevention expert provides insight into whether these fears are overblown.
• Regulations like MiCA could help close existing gaps.

The cryptocurrency industry is a constantly evolving space, one in which firms work tirelessly to pioneer innovative solutions to propel the technology forward. However, even as security, scalability, and efficiency are pushed to new levels, there is one thing that has remained a constant in the minds of detractors: the use of crypto in criminal activity.

Concerns over the illicit use of cryptocurrencies for activities like terrorism financing and money laundering have sparked heated debates among lawmakers and experts, and recent events involving Binance , the world’s largest crypto exchange, have only intensified these concerns, as the entity pleaded guilty to breaking U.S. money laundering and sanctions laws.

At Web3 Summit Vilnius 2023, DailyCoin sections editor Stefan Trapp engaged Mindaugas Petrauskas, head of financial crime prevention at AMLYZE, to delve into whether these recent fears over the illicit use of crypto are overblown as members of the crypto community suggest.

Misinterpreted Data Whips up Controversy

On October 10, the Wall Street Journal whipped up controversy by reporting that Hamas raised as much as $93 million in crypto between August 2021 and June 2023, citing an analysis from Elliptic. However, this report has since been disputed by the very same blockchain analytics firm.

Elliptic argued that the WSJ misinterpreted its analysis. The firm explained that its claim that seized crypto wallets linked to the terrorist organization had processed $93 million in transactions between 2020 and 2023 had been taken out of context as it is not clear that all these funds could be directly attributed to the terrorist group. According to the firm, some of the wallets likely also belonged to small brokers used by Hamas, who also processed volumes from other sources and for different purposes. 

Elliptic further contended that crypto had not proven to be a viable means of funding for Hamas or other terrorist organizations due to the traceability of the blockchain. The firm highlighted that it was for this reason Hamas had cautioned its supporters against making crypto donations in April 2023 as most of the funds ended up seized.  

Despite Elliptic’s rebuttals, debates have continued about the extent and viability of crypto use in illicit activities and whether it should be a pressing concern.

So, to what extent is the use of crypto in money laundering and terrorism financing a concern?

Overblown Fears?

Speaking with DailyCoin, Head of Financial Crime Prevention at AMLYZE Mindaugas Petrauskas asserted crypto was less of a concern in money laundering. 

“There are not so many cases where we have a big amount of money being laundered through crypto,” he asserted, speaking from 16 years of experience in financial crime prevention. “When we speak about big cases, let’s say when we speak about laundromats, from like Azerbaijan, Russia, wherever, usually, they are not touching crypto, they are touching fiat currency.”

Photograph by Dominika Grigorovičiūtė

On terrorism financing, however, the financial prevention expert did note that the illicit use of crypto could pose a concern.

“In terrorism financing, you don’t need a big amount of money. 10 or 20 or 30,000 euros is usually enough to commit some terrorist act,” Petrauskas explained.

Even in these instances, the financial expert detailed that the issue could be controlled if crypto firms had proper Know Your Customer (KYC) systems and cooperated with law enforcement. 

Petrauskas noted he had worked on one such case while at the Lithuanian Financial Crime Investigation Service, where an Islamic terrorist sect was receiving Bitcoin donations. However, he explained that they stopped the flow of funds with notable assistance from an unnamed crypto exchange.

“They were very cooperative,” he asserted.

The financial crime expert suggested that cooperation between law enforcement and crypto firms was generally on the rise using Lithuania as a case study. 

“In 2021, I think VASPs provided something like 400 suspicious transaction reports. And then in 2022, they have provided like 4000 suspicious transaction reports,” he disclosed.

But driven by an incentive to maximize profits, there are still some crypto firms that have been known to cut corners with KYC controls and compliance. On Tuesday, November 21, Binance pleaded guilty to violating money laundering and sanctions rules. In these instances, Petrauskas suggests regulations like the European Union’s Market in Crypto-Assets (MiCA) will help shore up potential gaps.

Changing Tides

For the past decade, crypto firms have largely operated in a gray area, but things are changing as more jurisdictions roll out rules to govern the nascent industry. One such framework is MiCA. 

Aside from setting licensing requirements for crypto companies, the framework also imposes transparency requirements on these firms. These include record-keeping and trade transparency measures. There is also the controversial travel rule, which requires exchanges to report transactions over €1,000 (approximately $1,100). The rule has attracted flak from members of the crypto community who argue that it hurts user privacy and places unnecessary costs on crypto firms. But Petrauskas offers a different view. 

“I think, from the point of view of money laundering prevention, it’s [MiCA’s] good,” Petrauskas asserted.

Advocating for the compliant path, Petrauskas contended that it was better for business overall.

“Have good due diligence and have AML procedures,” he admonished. “With this, all crypto companies will sleep well knowing they have the same knowledge and the same possibilities to work with their clients as financial institutions like neo banks and FinTechs.” 

On the Flipside 

• The global nature of crypto allows firms to offer services to an international audience while operating from jurisdictions with lax regulations. One such firm, BKex, recently vanished with customer deposits.
• Crypto ethos is deeply intertwined with anonymity and privacy.

Why This Matters

Comments from Mindaugas Petrauskas suggest that illicit crypto use should not be a major concern with the right controls. However, clear and comprehensive regulations would be key to ensuring that bad actors are deterred from turning to crypto to hide their trail.

Read this to learn more about the recent debate about crypto’s use in terrorism financing:

Unraveling Hamas Crypto Terror Financing in Israel-Gaza War

Read this to learn Polygon’s partnership:

Polygon Gets Big Boost as Flipkart Unveils Layer 2 Plans