Earlier on, cryptocurrencies exploded as a viable way in which to trade currency.
Due to its very nature and initial lack of regulation, it resulted in a large influx of illicit
activity – namely money laundering. It is now a topic to deliberate upon “how safe
are cryptocurrencies” as regulators are still grappling with cryptocurrencies. How
soon will cryptocurrency not be linked to money laundering activities? Hence, not generate negative reactions, will this ever be resolved in the nearest future?
Cryptocurrency And Money Laundering
Money laundering is the act of altering illegally obtained money to make it look legit through various means such as wire transfers, breaking the money into small
deposits and investments and currency exchange, which cryptocurrency has been viewed as one the viable ways to trade currency due to the anonymity of it’s end
Despite the wide adoption of bitcoin and other cryptocurrencies since it’s introduction
over a decade ago many in the financial sector are skeptical about cryptocurrency’s
legitimacy, viewing it with suspicion from an anti-money laundering perspective, whereas some have publicly stated that cryptocurrencies are an ideal mechanism for
fraud, money laundering, sanctions evasions and other illicit activities.
In May, the Chinese government banned banks and payment firms from providing services related to cryptocurrency transactions and even more recent the Bank of
Russia in an information letter recommends that management firms should not
include cryptocurrency as a unit of investment suggesting that cryptocurrencies and
digital assets are characterized by high volatility, non-transparent pricing, low liquidity, technological, regulatory and other specific risks.
How Safe Are Cryptocurrencies?
Is the growing use of cryptocurrencies a risk to the financial system? Is the financial
sector being exposed to significant new anti money laundering risks by crypto
currencies? Well, perceptions of substantial dark web use, a flood of unregistered exchanges, and the anonymity of end-users have alarmed many in the financial services industry, including financial institutions and regulators alike, however it’s
impact in any economy isn’t totally negligible from it serving as a portable and
secured means of moving money to an alternate store of value many use today to hedge against inflation.
Also, regulated exchanges (Nairadirect and Exchangeindeed) and wallet providers have comprehensive anti money laundering programmes in place that stipulate
the gathering of KYC/CDD information for customers and through established
procedures can provide information to law enforcement should there be the need to trace or investigate any suspicious cryptocurrency transaction as the blockchain ledger is traceable and accountable.
The Bottom Line
In some respects, cryptocurrencies have deserved their reputation, and indeed are the mechanism of choice for many online criminal schemes such as ransomware or buying goods and services from the dark web. However, unlike traditional forms of payment, especially cash, the end-to-end payment chain is traceable and publicly available, arguably making it safer to trace the flows and understand what is happening, even if the end-users are not always not readily identifiable.
Also as more and more virtual asset service providers are becoming regulated and
putting in anti money laundering controls and programmes, the situation is improving and it could be said that the overall money laundering risk is decreasing, but with virtual asset service providers outside of regulation, there is still a gateway for criminals which will take many years to close down.