As the name suggests, money laundering is converting illegal money into legal money. In other words, the process of cleaning the dirty money. The first concrete legal steps were taken in the 1930s by the United States federal government. Money laundering is being used to fund all kinds of illegal activities worldwide, like terrorism, and governments worldwide employ various methods to reduce illicit activity. According to an estimate, around 2–5% of the world’s GDP is lost to money laundering, making it a significant issue.
The advent of cryptocurrencies in the 21st century has provided criminals with another avenue to launder money. The currency’s decentralized nature, the lack of regulations in many jurisdictions, and the easy cross-border transfer process provide an ever-increasing threat. The most common method of laundering cryptocurrency is smurfing (or crypto smurfing). Smurfing colloquially is used for the operation of depositing illegal money into various bank accounts to make smaller transactions, which will most probably be under the legal limit required to report the transaction and hence, evading the law.
Smurfing is conducted in three steps:
- Placements
In this stage, cash is brought into the financial establishment by transferring small quantities to countries suffering from lax regulations and hence, easier to buy cryptocurrencies.
2. Layering
At this stage, the criminals try to hide the actual source of the money by making multiple, structured transactions. These involve buying new cryptocurrencies that can be used as another digital currency or transferred to different countries.
3. Integration
Integration is when funds are brought back into the economy through various over-the-counter brokers specializing in this process and charging a hefty commission. Cryptocurrencies also provide other avenues for integration:
a. Peer-to-peer crypto network: Criminals can transfer funds to countries with lax anti-crypto laundering regulations.
b. Crypto ATMs: These ATMs allow people to trade in cryptocurrencies for cash. Criminals can quickly sell their digital currency and get cash.
c. Online gambling: Many online gambling sites accept digital currencies where criminals can buy in chips, play a few rounds, and then cash out their chips.
International governments and organizations have been late catching up with the criminals and have only recently started making laws to stop criminal activity.
- All transactions above 10000$ are to be reported with senders’ identification information.
- The global anti-money laundering (AML) watchdog, financial action task force (FATF), recommended that all brokers and dealers of cryptocurrencies be registered with the federal government in each country. Singapore became one country to make laws taking FATF’s suggestions into account in 2020.
- Many other countries are now slowly coming with strict regulations to curb any illegal activity. Some nations are banning the exchange of any digital currency altogether.
References
- https://www.investopedia.com/terms/s/smurf.asp
- https://www.tookitaki.ai/news-views/moneylaundering-via-cryptocurrencies/
- https://www.finder.com.au/transatlantic-crypto-money-laundering-scheme-a-sign-of-the-times
- https://www.europol.europa.eu/media-press/newsroom/news/two-criminal-groups-dismantled-for-laundering-eur-25-million-through-smurfing-and-cryptocurrencies
