Money Laundering in the Age of Cryptocurrency

As financial transactions have become more complex, so have money laundering strategies and tactics. State and federal investigators have become quite proficient at flagging certain problematic financial transactions, and the mantra of “follow the money” has always been the lynchpin of fraud investigations. The rise of cryptocurrency in the world markets has presented new challenges for law enforcement and prosecutors. The crime of money laundering, which is codified in 18 U.S. Code § 1956 and 1957, is as prevalent as ever thanks to the proliferation of virtual currency such as Bitcoin and Ethereum and the ability to conceal illicit transactions.

In a nutshell, money laundering involves obtaining ill-gotten money (through drug trafficking or fraud, for example) and running it through legitimate financial transactions to conceal or disguise the money’s original source. Conducting financial transactions with cryptocurrency is increasingly the method of choice for money launderers.

How Does Money Laundering with Cryptocurrency Work?

Cryptocurrency is exceptionally difficult—sometimes impossible—to trace. Government regulations are light years behind the times and, as a result, there are plenty of opportunities for “dirty money” to be laundered through cryptocurrency exchanges. As a simple example, let’s say a kilogram of cocaine is sold, and the buyer pays the seller in cryptocurrency. Once the seller receives the money, it can be cashed out through a cryptocurrency exchange and converted to U.S. dollars. In light of the lack of government regulations, these transactions can be anonymous, thwarting law enforcement’s ability to “follow the money."

These conditions have opened the door to ransomware attacks. Ransomware takes hold of a company or individual’s computer files when that individual clicks on a link in an email appearing to be legitimate (phishing scams), or by exploiting a software vulnerability. At this point, the user’s files are encrypted and only the hacker holds the digital key for unlocking the encrypted files and restoring the system. The hacker then demands a ransom from the victim in exchange for the digital key, paid only in cryptocurrency.

Drivers in the Southeast recently became acquainted with ransomware impacts after the computer systems for Colonial Pipeline were attacked. The company, which is responsible for nearly 50 percent of all fuel consumed on the East Coast, responded by shutting down operations for a few days. The hackers received nearly 75 Bitcoins—$5 million in U.S. currency—for the ransom. Although authorities reportedly recovered a significant portion of the ransom, the disruption to the flow of fuel had a significant effect on businesses and consumers.

In our modern economy, digital users’ personal information is the product. There are plenty of individuals who are willing to pay big (virtual) money for bank account information, driver’s license numbers, and other personally identifiable information to commit the crime of identity theft. And what is the currency of choice for payment? You guessed it - cryptocurrency!

Conclusion

Money laundering has been a crime since the 1980s, but the contemporary methods used to commit this criminal offense are often incredibly complex. If you’re dealing with allegations of money laundering, you need an experienced and innovative criminal defense attorney to fight these charges and protect your rights. Contact our firm today for urgent, professional, and aggressive representation. We offer free consultations to all prospective clients.