Fiat is Far More Common Than Bitcoin for Money Laundering, Confirms US Treasury Department

Ear­li­er this month, the US Trea­sury Depart­ment released three-year­ly reports cov­er­ing mon­ey laun­der­ing, ter­ror­ist financ­ing, and pro­lif­er­a­tion financ­ing – all of which exten­sive­ly dis­cussed vir­tu­al assets.

While not­ing many of their risks in these areas, they note that fiat cur­ren­cy and tra­di­tion­al net­works are still far more com­mon­ly used than cryp­to in illic­it finance.

Crypto for Money Laundering

The Nation­al Mon­ey Laun­der­ing Risk Assess­ment named “vir­tu­al assets” as an ever-evolv­ing world with­in mon­ey laun­der­ers’ grow­ing toolk­it for hid­ing their funds. It specif­i­cal­ly named DeFi and “anonymi­ty enhanc­ing tech­nolo­gies” as poten­tial culprits.

Vir­tu­al assets have also report­ed­ly played a sig­nif­i­cant role in both phish­ing attacks and ran­somware scams through­out the pan­dem­ic. Nefar­i­ous actors may use promis­es of gains from the volatile cryp­to mar­ket to bait vic­tims into reveal­ing their per­son­al infor­ma­tion or to plant mal­ware on their devices. Then, the attack­ers may demand to be paid in cryp­to after attack­ing, which is both pseu­do­ny­mous and irreversible.

Over­all, the report claims that the use of cryp­to as a method for laun­der­ing mon­ey – includ­ing drug mon­ey – is grow­ing. This would cor­rob­o­rate a recent Chainal­y­sis crime report find­ing that more mon­ey was sent to crim­i­nal blockchain address­es than ever in 2021.

How­ev­er, the Trea­sury Depart­ment admits that fiat cur­ren­cy is still king when it comes to crim­i­nal mon­ey. “The use of vir­tu­al assets for mon­ey laun­der­ing remains far below that of fiat cur­ren­cy and more tra­di­tion­al meth­ods,” they state.

Fur­ther­more, while crim­i­nals in cryp­to are on the rise, Chainal­y­sis also finds that the share of ille­gal funds in the space is at an all-time low, com­pris­ing just 0.15% of all trans­ac­tions. That’s down from 0.62% in 2020, and 3.37% in 2019.

Is Crypto Effective for Crime?

The report clar­i­fies that cryp­to is a mixed bag for crim­i­nals. On one hand, peer-to-peer trans­ac­tions and self-cus­to­di­al wal­lets can assist users in evad­ing finan­cial con­trols, which can usu­al­ly only tar­get cen­tral­ized inter­me­di­aries. On the oth­er, most blockchains – includ­ing Bit­coin – use very trans­par­ent pub­lic ledgers, which can make it eas­i­er to track crim­i­nals down.

Ille­gal trade using cryp­to has been a hot top­ic as of late, as offi­cials scram­ble to com­bat the loom­ing threat of Russ­ian cryp­to use for evad­ing sanc­tions. On this top­ic, Tom Robin­son – CEO of blockchain ana­lyt­ics firm Ellip­tic – not­ed that cryp­to “can and will be used for sanc­tions eva­sion,” but isn’t a “sil­ver bullet.”