AND MONEY LAUNDERING
AND MONEY LAUNDERING
INTRODUCTION. 2.- BLOCKCHAIN. 2.1.- How a chain of blocks works. 2.2.- Financial
action task force. 2.3.- Cryptocurrencies today. 3.- MONEY LAUNDERING. 3.1.- Stages
in the money laundering process. 3.2.- Generic systems of money laundering. 3.3.-
The money laundering process and cryptocurrencies. 4.- METHODS FOR MONEY
LAUNDERING WITH CRYPTOCURRENCIES. 5.- MODUS OPERANDI OF MONEY LAUNDERING. 5.1.-
Mining. 5.2.- Mixers. 5.3.- Local traders. 5.4.- Online video games. 5.5.- Exchanges.
5.6.- ATMS. 5.7.- Fraude. 6.- DRUG TRAFFICKING. 6.1.- Modus operandi of drug
trafficking with cryptocurrencies. 6.2.- Money laundering between the EU and
South America. 7.- CONCLUSIONS
of their global availability, ease of access, reliability and irreversibility
of transactions, speed of international transfers and ability to obfuscate the
identity of the owners of the funds, cryptocurrencies are an ideal tool for
money laundering. Virtually all types of criminal proceeds can be laundered
The analysis of techniques for using cryptocurrencies
for money laundering, as well as the analysis of current legislation, will make
it possible to determine whether greater police efforts are needed to modernise
technology for the investigation of this type of crime.
a su disponibilidad mundial, a la facilidad de acceso, a la fiabilidad e
irreversibilidad de las transacciones, a la rapidez de las transferencias
internacionales y a la capacidad de ocultar la identidad de los propietarios de
los fondos, las criptomonedas son una herramienta ideal para el blanqueo de
capitales. Prácticamente todo tipo de beneficios delictivos se pueden blanquear
análisis de las técnicas de uso de criptomonedas para el blanqueo de capitales,
así como el análisis de la legislación vigente, permitirá determinar si es
necesario un mayor esfuerzo policial de modernización tecnológica para la
investigación de este tipo de delitos.
Money Laundering, Guardia Civil, Blockchain, Drug Trafficking.
Palabras clave: Criptomonedas,
Blanqueo de Capitales, Guardia Civil, Blockchain, Tráfico de Drogas.
are a technological and financial breakthrough with significant global economic
potential. However, in the absence of adequate regulation, they are also used
for illegal purposes. They are attractive to those wishing to avoid detection
by law enforcement but innovative investigation and analysis techniques make it
easier to detect suspicious transactions and identify users.
The use of this virtual currency for criminal
activities and money laundering has increased and become more sophisticated in
recent years. Tools that facilitate the use of cryptocurrencies are now widely
available and services devoted to channelling criminal proceeds are well
established. As a result, the criminal use of cryptocurrencies is no longer
limited to cybercrime, but now relates to all types of crime that require the
transmission of monetary value.
Cryptocurrency tracking is key in many law enforcement
investigations and has led to successful operations in cases that would
otherwise have gone unsolved. The number of requests for cryptocurrency
analysis addressed to Europol has been steadily increasing over the years.
Until 2019, such requests mainly concerned cybercrime. Today, however,
cryptocurrency tracking requests are linked to many areas of crime.
Investigations regarding the dismantling of encrypted communication services
that are widely used by criminals have confirmed the use of cryptocurrency for
large-scale transactions and/or money laundering in connection with several
Law enforcement agencies, to a greater or lesser
extent and at a national and international level, have units specialised in the
study of economic crime and specifically in the investigation of crimes related
to money laundering. It is very difficult to start analysing money laundering
through cryptocurrencies from scratch for all these actors that specialise in
the traditional criminal offence of money laundering due to the high technical
capacity needed to process the information and data that remain on the
blockchain and to be able to trace the transactions carried out on it.
Blockchain is a subset
of what is known as distributed ledger technology (DLT). It is a method of
recording and exchanging data using data warehouses, also known as ledgers,
which all contain the same data records and are collectively maintained and
controlled by a distributed network of computer servers known as nodes.
is a mechanism that employs a method of encryption known as cryptography and
uses specific mathematical algorithms to create and verify an ongoingly growing
data structure –to which only data can be added and from which existing data
cannot be removed– that takes the form of a blockchain of transactions, which
works as a distributed ledger." (Natarajan, Krause and Gradstein, 2017)
blockchain is a multifaceted technology. It can include a variety of features and
cover a wide range of systems, from fully open ones and without permissions to
Someone on a
blockchain without permissions can join or leave the network at any time
without needing to be authorised by any institution. All you need is a computer
with the required software installed to connect to the network and contribute
transactions to the ledger. There is no single owner of the network or software
and identical copies of the ledger are distributed to all nodes in the network.
The vast majority of cryptocurrencies in circulation today are without
permission and blockchain-based (e.g. Bitcoin, Litecoin). (Natarajan, Krause
and Gradstein, 2017)
In order to
join an authorised blockchain, transaction validators have to be pre-selected
by a network administrator, who sets the rules of the ledger. This enables,
among other things, easy verification of the identification of network
participants. However, it also requires that network participants rely on a
central coordinating body to choose reliable network nodes. Licensed
blockchains are classified into two classes. (Shobhit, 2018)
open blockchain with permission, which can be accessed and viewed by anyone,
but where only authorised network participants can generate transactions and/or
update the status of the ledger. (Witzig and Salomon, 2018)
with closed permissions, where only the network administrator has access to
generate transactions and change the ledger status. It should be noted that, as
in an open blockchain without permissions, transactions on an open blockchain
can be validated and executed without the need for a third party.
2.1.- How a chain of blocks works.
database that can be considered as such is blockchain. One member initiates
additions to the database by creating a new "block" of data, which
can contain any type of data. This new block is then transmitted to all parties
in the network in encrypted form using cryptography, which ensures the privacy
of the transaction.
members use a pre-defined algorithmic validation process, generally referred to
as a "consensus mechanism", to collectively assess the validity of
the block. The new "block" is added to the blockchain once it has
been validated, essentially updating the ledger of transactions circulating on
the network. This technology can be used with any asset that can be represented
digitally and used for any type of value exchange. (Natarajan, Krause and
blockchain network, each user has a pair of keys. There are two types of keys:
a private key that is used to produce a digital signature for a transaction,
and a public key that is known to everyone in the network. A public key can be
used for two purposes:
"It serves as an address in the blockchain network.
It is used to verify a digital signature/validate the identity of
wallet, often referred to as an e-wallet, stores a user's public and private
keys. This wallet can be held or stored online (sometimes referred to as
"hot storage") or offline (often referred to as "cold
storage"). (FATF, 2014)
One of the
most significant advantages of blockchain technology is that it simplifies the
execution of a wide variety of transactions that would otherwise require the
intervention of a third party. (In essence, blockchain is about decentralising
trust and enabling decentralised transaction authentication). It simply cuts
out the middleman. (Witzig & Salomon, 2018)
are not easy to define. Like blockchain, cryptocurrencies have become a
buzzword for a wide range of technological advances that use a method known as
cryptography. A critical review of the definitions that have already been
created by several interested policy makers at European and international level
will be undertaken in the following in an attempt to provide an acceptable
definition of cryptocurrencies.
The issue of
cryptocurrencies has been analysed by various bodies, each of which has handled
it in a different way. The main and most useful definition is that provided by
the Financial Action Task Force:
2.2.- Financial action task force
Action Task Force (FATF) is the global watchdog on money laundering and
terrorist financing. This intergovernmental body sets international standards
aimed at preventing these illegal activities and the harm they cause to
society. As a policy-making body, the FATF works to generate the political will
required for national legislative and regulatory reforms in these areas.
200 countries and jurisdictions committed to implementing them, the FATF has
developed the FATF Recommendations or FATF Standards, which ensure a
coordinated global response to prevent organised crime, corruption and
terrorism. They help authorities pursue the money of criminals trafficking
illegal drugs, humans and other crimes. The FATF also works to stop the
financing of weapons of mass destruction.
reviews money laundering and terrorist financing techniques and strengthens its
standards on an ongoing basis to address new risks, such as the regulation of
virtual assets, which have become more widespread as cryptocurrencies gain
popularity. The FATF monitors countries to ensure that they fully and
effectively implement the FATF standards and holds countries accountable if
they fail to do so." (Financial Action Task Force, 2022)
other policy makers, the FATF has addressed cryptocurrencies as a subset of
virtual currencies, which it defines as digital representations of value that
can be digitally traded and work as a medium of exchange, and/or an account
unit, and/or a value deposit, but are not legal tender in any jurisdiction.
currency is a digital representation of value that can be digitally traded and
works as an exchange medium, account unit or value deposit, but is not legal
tender in any jurisdiction. It is not issued or guaranteed by any jurisdiction
and performs the above functions only by agreement within the community of
virtual currency users"
currency is distinguished from fiat currency, which is the currency and paper
money of a country that is designated as its legal tender, circulates, and is
commonly used and accepted as a medium of exchange in the issuing country. It
is different from e-money, which is a digital representation of fiat currency
used to electronically transfer value designated in fiat currency. E-money is a
digital fiat currency transfer mechanism, i.e. it transfers legal tender value
currency" can mean a digital representation of virtual (non-fiat) currency
or electronic (fiat) money, and is therefore often used interchangeably with
the term virtual currency.
states that virtual currencies fall into two categories:
virtual currencies that have an equivalent value in real currency and can be
exchanged for real currency –these virtual currencies can be centralised or
decentralised in nature.
virtual currencies that are specific to a certain domain or virtual world
(multiplayer online game) and under the rules governing their use, cannot be
exchanged for fiat currency. (FATF, 2014)
non-convertible virtual currencies are centralised: by definition, they are
issued by a central authority which sets rules that make them non-convertible.
In contrast, convertible virtual currencies can be of two sub-types:
centralised or decentralised.
virtual currencies have a single managing authority that controls the system.
An administrator issues the currency, sets the rules for its use, keeps a
central ledger of payments and has the authority to redeem the currency.
Currently, the vast majority of virtual currency payment transactions are
undertaken with centralised virtual currencies.
virtual currencies (also known as cryptocurrencies) are distributed,
open-source, mathematics-based virtual currencies that have no central
authority to administer them and no central control or supervision. Example:
Bitcoin, Litecoin and Ripple."
refers to a convertible, decentralised, mathematically based virtual currency
that is protected by cryptography. Cryptocurrency relies on public and private
keys to transfer value from one (natural or legal) person to another and must
be cryptographically signed each time it is transferred. The security,
integrity and balance of cryptocurrency ledgers are guaranteed by a network of
mutually distrusting parties who protect the network in exchange for the
opportunity to earn a randomly distributed commission. Hundreds of
cryptocurrency specifications have been defined, mostly derived from Bitcoin,
which uses a proof-of-work system to validate transactions and maintain the
blockchain. While Bitcoin provided the first fully implemented cryptocurrency
protocol, there is growing interest in the development of alternative,
potentially more efficient methods, such as proof-of-stake based systems."
2.3.- Cryptocurrencies today.
market has surpassed USD 3 trillion for the first time in its history in 2021
according to the website Coin Gecko, which monitors the market for more than
by far the largest cryptocurrency and currently accounts for 41% of the total
cryptocurrency market capitalisation, while the second largest, Ethereum,
accounts for around 18%. Among the smaller players in this market is Binance
Coin, with a current value of USD 109 billion, followed by Tether, which ranks
fourth with a market capitalisation of USD 75 billion.
cryptocurrency industry remains largely unregulated, the authorities are
becoming increasingly interested, opening the way to a widening circle of
investors and the possibility of future democratisation. An increasing number
of companies are allowing and accepting Bitcoin payments, while one of the
largest exchange platforms, Coinbase, went public in April 2021. (Roa)
Money laundering tends
to be an international, professionalised and sophisticated activity that is not
confined to one state. The economic trend towards what has come to be known as
globalisation drags many human activities towards interdependence; however,
criminal enforcement mechanisms are still limited by borders.
developments and deregulation make it possible to transfer huge amounts of
money in a matter of minutes and with minimal traceability. The ease of
transporting people and goods can improve the global economy but it also
favours the expansion of crime and the ability of criminal organisations to establish
themselves in countries without diminishing the ability to control them.
huge sums generated and the increasing difficulties in concealing the illicit
origin of money and assets have encouraged criminals to seek out those with the
knowledge, skills and experience to circumvent state control mechanisms. The
infrastructure related to tax avoidance has thus been put at the service of
hiding money of criminal origin. Tax evasion is not socially considered as a
criminal activity, although it is a serious form of unscrupulous behaviour as
it hinders the redistribution of wealth.
increasing attention of institutions to money from organised crime has led to
the transformation of laundering mechanisms from simple laundering to the configuration
of genuine and complex laundering networks, in which the most sophisticated and
imaginative means are used to make the money legal. (Fernandez, 2022)
3.1.- Stages in the money laundering process
The model proposed by
the Financial Action Task Force is based on three phases: placement
(concealment), diversification or layering, and integration.
Placement is defined as
the act of physically disposing of large amounts of cash without yet concealing
the identity of the holders. The Executive Service states that concealment
implies that the laundering process is initiated by converting the money into
cash, another good or moving it to a different location. In its simplest sense,
placement involves the deposit with an institution of the cash generated by the
last traffic step. Placement mechanisms are:
financial institutions. Banks.
cash income (structuring), buying financial instruments ("smurfing"),
exchanging small banknotes for large banknotes, etc. (The term
"smurfing" is usually limited to the exchange of currency in small
amounts of cash).
financial institutions. Institutions that provide services like banks but can
be used in the same way.
companies or businesses with high cash receipts, whether or not they correspond
to reality, the purchase of goods with cash or smuggling cash or documents of
exchange bureaux, insurance brokers, gemstone dealers, prize buyers,
stockbrokers, money transfer companies, etc.
It consists of
concealing the origin of the money or the goods acquired with it through a
certain number of financial transactions, i.e. stratifying the movement of
capital by preventing the trail that could identify it with its origin to be
followed. Diversification mechanisms are:
a) Creation of
a fake paper trail.
of financial instruments with easy physical transportation and immediate
c) Resale of
goods purchased for cash.
funds transfer. (FATF, 2014)
It consists of the
introduction into legal economic circuits of goods of criminal origin,
pretending that they come from licit activities. Integration mechanisms are:
a) Real estate
b) Creation of
fake companies and simulated credits.
in and control of legitimate businesses. (FATF, 2014)
3.2.- Generic systems of money laundering
Some activities that
are most commonly employed to achieve the desired results. Some fund laundering
a) Use of tax
havens. There are certain countries with rather permissive and low-pressure tax
legislation while their banking regulations allow the opening of secret
accounts in which the names of the depositors remain anonymous.
for secured loans. The method consists of depositing the proceeds of illicit
activities in a country that observes banking secrecy. Then going to the bank
and applying for a loan backed by money deposited in another country as
collateral. It can be argued that they have set up some companies or businesses
abroad when asked to explain this sudden enrichment.
business. The Costa del Sol and the Costa Brava have been a paradise for
foreign criminals for decades, where a large part of the millions obtained have
been invested in housing estates, hotels or placed in bank vaults.
d) Many of
these people have set up businesses such as restaurants, cafés, supermarkets,
nightclubs, etc., as it is difficult to determine the exact turnover in these
businesses. Money can be laundered by mixing dirty money with legally earned
gambling. Playing with dirty money means laundering funds.
f) Use of
banks. Several smaller deposits made in different banks and in the names of
family members may go unnoticed.
g) Purchase of
winning tickets. Buying a prize by paying an extra and thus justifying that the
investor is the person who won the prize is another method of money laundering.
h) The use of
cryptocurrencies by criminal organisations is on the rise, in line with their
adoption as a payment system by society. (Fernandez, 2022)
3.3.- The money
laundering process and cryptocurrencies
The placement step in
the cryptocurrency laundering process involves the use of exchanges. Money
brokers open several accounts using money mules as front men and fake identity
documents. A money broker receives cash from criminals to exchange into
cryptocurrencies; alternatively, the broker uses cryptocurrencies that have
already been obtained to move that amount to other jurisdictions. In some
cases, intermediaries contact private sellers on cryptocurrency exchange
platforms. Criminals have used these marketplaces to buy cryptocurrencies from
private sellers in different EU countries.
phase provides for the exchange of primary currencies for other currencies so
that intermediaries hide the origin of the cryptocurrency. This process is also
known as "chain hopping", whereby money moves from one cryptocurrency
to another, across exchanges –the less regulated the better– and jurisdictions
to create a money trail that is difficult to trace. The stratification process
may also involve the use of blending services. The new cryptocurrency looks
"clean" after this process.
integration of funds can be carried out in several ways, depending on the
client's wishes. In some cases, money mules open several bank accounts in one
or more countries. Documents and identity information from bank accounts remain
in the possession of the criminal network. The transfer of funds from the
exchanges to these bank accounts is processed on the same day, to avoid price
fluctuations. This means that the exact amount of purchased cryptocurrencies is
exchanged and transferred to the bank accounts operated by the criminals.
Alternatively, criminals set up online companies that accept cryptocurrency
payments to legitimise their profits.
4.- METHODS FOR MONEY LAUNDERING WITH CRYPTOCURRENCIES
cryptocurrencies, new methodologies for money laundering are emerging that make
it difficult for countries to combat this type of organised crime. The risks
arising from the use of cryptocurrencies for illicit purposes can be grouped
under the following three headings:" (Navarro Cardoso, 2019)
Use of cryptocurrencies to pay for criminal services.
2. Use of
virtual currencies as a form of fraud.
3. Use of
virtual currencies to launder money of illicit origin.
technologies have encouraged criminal behaviour in the areas of money
laundering and tax fraud, as well as other types of crime, due to anonymity,
speed, trans-nationality and non-presence. Virtual currencies have clearly
established themselves as a relatively safe tool for criminals to move illicit
wealth around the world with less risk than traditional techniques. (Navarro
5.- MODUS OPERANDI OF
Cryptocurrencies are a
technological and financial breakthrough with significant global economic
potential. However, in the absence of adequate regulation, they are also used
for illegal purposes. Cryptocurrencies are attractive to individuals seeking to
escape detection by law enforcement. Moreover, innovative investigation and
analysis techniques enable the detection of dubious transactions and the
identification of users.
The use of
this virtual money for illegal operations and profit laundering has increased
in recent years in terms of volume and sophistication. Tools that facilitate
the use of cryptocurrencies are now widely available and services specialised
in channelling illegal gains are well established. As a result, the criminal
use of cryptocurrencies is no longer limited to cybercrime, but increasingly
encompasses all types of crime involving the transmission of monetary value.
use of cryptocurrencies covers a wide range of activities. They have been used
in money laundering schemes and linked to a number of underlying crimes such as
fraud and drug trafficking. They are also commonly used to pay for illegal
goods and services sold online and offline.
laundering is the most common criminal activity related to the illegal use of
cryptocurrencies. Due to their growing popularity and use, cryptocurrencies are
increasingly used in money laundering activities. Other criminal acts related
to cryptocurrencies include using them as a payment method for illegal goods
and services, making fraudulent investments in bitcoins and engaging in cybercrime.
In all cases, criminals use them to disguise the origin of illicit assets.
There are a
large number of criminal offences involving cryptocurrencies. The methods used
to launder money and to convert money obtained illegally in different ways into
legal money are explained below.
committing fraud rely heavily on the use of cryptocurrencies. The number of
requests to Europol for support in tracing cryptocurrency-related fraud has
increased considerably in recent years. It involves the deposit, transfer and
laundering of the proceeds of fraud, as well as specific scams that lure
victims into investing money in a newly created currency that later turns out
to be a scam. (Europol, 2020)
are also the preferred method of payment for illegal goods and services such as
drugs and child sexual abuse material purchased online, especially on dark web
marketplaces, where they are the primary payment method. Several malware
strains target cryptocurrency theft as well as coin mining in a network of
unwitting victims and cybercriminal extortion schemes, among other things.
"Mining in the
cryptocurrency world can be defined as the set of processes required to process
and validate transactions of a cryptoasset using a blockchain network. The
protocol only allows these transactions to be processed by specialised users
called miners. Within such a network, for a transaction to be validated, a
complex mathematical problem needs to be solved. The key has to be cracked by
making random attempts, earning the right to decide the block. By writing that
block down in the ledger, these computers are the miners of the
cryptocurrency." (Barroilhet, 2019)
mathematical problem is solved, the transaction is added as another block,
making it irreversible. The first person to solve the mathematical puzzle is
rewarded with many cryptocurrencies, which are then distributed to the public.
Miners not only unlock money and contribute it to the network but also audit
the transactions. Almost all cryptocurrencies are created through mining.
equipment is expensive, costing more than €1,500 per unit, is noisy and
consumes a lot of electricity. Today, it is vital to have a high technological
capacity to mine virtual currencies, so it is essential to have a high
processing capacity to mine many cryptocurrencies at the same time.
Considerable infrastructure and a soundproofed area are required.
these reasons, companies and organisations carrying out this activity tend to choose
countries where electricity is cheaper or colder countries where less
refrigeration is needed. It is estimated that 75% of BTC mining takes place in
China due to the proximity to hardware manufacturers and lower electricity
costs." (Jiang, et al., 2021)
that obtain illicit funds through several criminal activities and need to
launder them use the funds to purchase cryptocurrency mining equipment.
Moreover, as mining requires a large amount of electricity, it often leads to
electricity fraud. Mining revenues can be reinvested in any asset or in an
apparently legal enterprise with profits that can be justified to the
authorities. (Barroilhet, 2019)
A service provided by
virtual platforms to ensure that their customers can hide the origin of
cryptocurrencies registered on the blockchain, it is marketed as a way to boost
the anonymity of transactions. All members' money is mixed on these platforms
and exchanged, erasing transaction tracking. (Albrecht, Duffin, Hawkins and
Morales Rocha, 2019).
5.3.- Local traders
People who advertise to
exchange virtual currency for real currency buying and selling cryptocurrencies
in exchange for cash are called exchanges. Some of the indicators that could be
related to money laundering include the following:
virtual currency against cash in significant volumes.
virtual currency against cash using channels that involve paying high fees
and/or enduring worse exchange rates.
made in unusual and anonymous places. In many cases, trades are organised
through internet forums and exchanges take place physically to ensure the buyer
of the cryptocurrencies pays cash and the seller merely provides their account
4. The purchase
is made with direct profits from other illicit activities." (Sanz-Bas, Carlos del
Rosal, Núñez Alonso and Echarte Fernández, 2021).
5.4.- Online video games
The use of online video
games to launder money is the most recent and relatively simple trend, which
can be found in tutorials on several digital video platforms such as YouTube.
To launder money, criminals use several online video games. This method is
demonstrated in the video game "Fortnite", which allows users to
acquire V-Bucks, the game's virtual money, by purchasing cards containing a
security code. The cards are resold to customers on the Dark Web at a cheaper
price in exchange for Bitcoins.
deposit their funds on exchange platforms, which works as wallets for them. The
use of the services of an exchange is usually subject to a fee. The risks
involved in the use of exchanges in terms of money laundering are the
principals do not operate from Spain; however, Royal Decree-Law 7/2021
establishes that natural or legal persons offering or providing services in
Spain are required to be registered.
2. They may be
directly controlled by the laundering organisation." (Sanz-Bas, Carlos del
Rosal, Núñez Alonso and Echarte Fernández, 2021).
accept cash and convert it into virtual currency, which is then sent to the
user's wallet; cryptocurrencies can also be sold in exchange for cash. The
operation of an ATM is as follows:
customer inserts cash that they want to convert into virtual cash into the ATM.
2. The ATM
sends the customer the equivalent amount in virtual currency, minus the
commission charged for the transaction, to a wallet indicated by the customer.
3. The exchange
linked to the ATM delivers the same amount of virtual currency to the operator
at market price.
4. The operator
tops up the ATM's purse by transferring virtual currency from the exchange.
5. The operator
collects the money from the ATM.
6. The trader
deposits the cash in the bank and makes a transfer to the stock exchange.
the entry into force of Royal Decree-Law 7/2021, which establishes that persons
providing services for the exchange of virtual currency for legal tender must
be subject to preventive obligations, the installation of cryptocurrency ATMs,
their maintenance, security measures and the supervision they must carry will
be regulated. (Sanz-Bas, Carlos del Rosal, Nuñez Alonso and Echarte Fernandez,
The most common
underlying crime for the illicit use of cryptocurrencies is fraud, which
accounts for over half of all documented criminal transactions. Fraudsters use
professional money laundering services (cryptocurrencies) or devise their own
annual report on the criminal use of cryptocurrency by Chainalysis reports that
fraud accounts for 54% of detected illicit activities in 2020, amounting to USD
2.6 billion. Online fraudsters, in particular, make frequent use of gambling
platforms to launder funds. Gaming platforms can be used in a similar way to
mixers to hide the origins and flows of illicitly obtained funds."
2021, revenue from scams increased by 82% to USD 7.8 billion in
cryptocurrencies stolen from victims. More than USD 2.8 billion of this total,
which is almost equal to the increase over the 2020 total, came from rug pulls,
a relatively new type of scam in which developers build what appear to be
legitimate cryptocurrency projects –meaning they do more than simply set up
wallets to receive cryptocurrency for, say, fraudulent investment
opportunities– before taking investors' money and disappearing." It should
be noted that the loss figures only reflect the value of the money stolen from investors,
not the losses resulting from the subsequent loss of value of the DeFi tokens
as a result of the theft.
Police operations Laundering the proceeds of fraud. French and Israeli security forces have dismantled a criminal network
involved in benefit fraud by usurping the identities of over 200 companies to
fraudulently apply for COVID-19-related state subsidies. This criminal
organisation is believed to have defrauded the French state of EUR 12 million
in unemployment benefits related to COVID-19. The fraudulently obtained
benefits were paid into French bank accounts, before being immediately
transferred via Belgian, Dutch and British bank accounts to Lithuanian bank
accounts and then to cryptocurrency wallets. (Europol, 2021)
While money launderers
continue to rely primarily on cash, cryptocurrencies are increasingly being
used to launder the proceeds of drug trafficking. In recent years, EU law
enforcement agencies have conducted several investigations into the laundering
of drug money using cryptocurrencies.
large-scale money laundering operations are often carried out by criminal
networks specialising in laundering cryptocurrencies. Given the cross-border
nature of drug trafficking, criminal networks providing laundering services
operate on an international scale, collecting and transferring funds in several
cryptocurrencies and fiat currencies across several jurisdictions.
Investigations into drug trafficking operations triggered by the recent
dismantling of encrypted communication platforms confirm that profits are often
collected by or delivered directly to service providers. (Pastor, 2022)
transactions analysed as part of EncroChat's research, 95% of users were found
to be using Bitcoin, followed by anonymous emerging currencies, such as Monero
and Dash. Analysis of the use of cryptocurrency addresses included in the SKY
CC and Anom related research datasets also shows a very marginal use of
altcoins. In these two
datasets, most of the addresses analysed were transferring directly to and from
exchanges, often of large size, making very limited use of obfuscation
techniques. These addresses had received large amounts of Bitcoin, showing
transactions worth millions of euros on some occasions. (Villanueva, 2022)
analysis is based on cryptocurrency addresses extracted from chats in the
Operations Limit and Greenlight datasets. The addresses were analysed with a
cryptocurrency tracking tool, which showed the amounts of the addresses and the
services that were linked to them. Further analysis led to a better
understanding of address reuse and a number of tactical recommendations for
similar datasets. An analysis of SKY CC datasets by Europol's EC3 revealed 673
addresses that received more than 4866 Bitcoins (worth over EUR 54 million).
One account received more than EUR 4 million. (Europol, 2021)
Figure 1. Results of the analysis of cryptocurrency addresses.
6.1.- Modus operandi of drug trafficking with cryptocurrencies
The relevance of
cryptocurrencies in the laundering of the proceeds of traditional offline crime
is difficult to assess. This is because cryptocurrency is originally deposited
as fiat currency with no evidence of its illicit origins visible on the blockchain,
rather than moving from addresses that have previously been recognised as
someone were already investigating the criminals in question would they know
where these funds come from, aside from knowing anecdotally that at least some
cryptocurrency can be used to launder money from offline crime
A common strategy used
by many criminal enterprises is the following:
organised criminal group (OCG) contacts a controller who is in charge of a
money laundering operation and tells them how much illicit cash they need to
move, the counterpart receiving it and where that counterpart is located.
controller will then contact one of the many coordinators they work with, whose
job it is to ensure that the money reaches the right counterpart.
3. The OCG
sends the controller and SMS with an image of a banknote with the serial number
visible. The controller sends the image to the coordinator, who sends it to the
collector in charge of physically receiving the cash.
4. Through the
controller, the coordinator communicates to the OCG where the cash will be
delivered. The two parties share other details, such as the make and model of
the vehicles to be driven by the exchange partners. This is done to limit the
risk of police infiltration at the meeting.
5. The OCG will
then pass on the photo of the invoice in step 4, together with the cash to be
transferred to a courier. Next, the courier meets the collector at the
designated place and time.
6. When they
meet, the messenger passes the note in the photo to the collector. The
collector then checks that the serial number matches the photo they received.
The transaction will not take place if they do not match. This is done to
assure the collector that the messenger, whom they have never seen, is the
7. If the
serial numbers match, the courier delivers the full amount of money to the
collector informs the controller that the cash has been delivered. At that
point, the controller carries out a value transfer process, whereby the money
is electronically transferred to a coordinator at the location of the OCG
counterpart. Traditionally, the wire transfer is done through banks or
traditional money service businesses (MSBs).
controller and the new coordinator then ensure that the same process described
in steps 1 to 7 is carried out in reverse at the OCG's counterpart location, so
that the counterpart receives an equivalent amount of cash –importantly, not
the same cash delivered at the OCG's location." (Chainalysis, 2021)
members of a drug trafficking ring operating in the UK and Australia were
arrested by authorities in 2019. In this case, drug traffickers smuggled
cocaine in items into Harrod's and then had unwitting employees ship the items
to addresses in Australia where the conspirators could retrieve them. The
Harrod's drug ring followed this exact procedure, with one exception: instead
of bank or MSB transfers, value transfers were made through Bitcoin
collectors, in particular, were in charge of carrying out the cryptocurrency
transactions. Following a cash drop, police tracking the Harrod's drug ring
caught one of these collectors, collected the cash and discovered evidence on
them person identifying the serial numbers of the aforementioned banknotes, as
well as a list of multiple Bitcoin addresses.
discovered a hardware cryptocurrency wallet with a six-month transaction
history showing the transfer of USD 8 million in cryptocurrencies to a major
exchange house. Blockchain analysis alone will never enable an investigator or
compliance officer to identify this money as dangerous because it entered the
Bitcoin ecosystem as fiat currency. (Chainalysis, 2021)
2. Common strategy used by many criminal enterprises. Source: Chainalysis.
Figure 3. Reactor graph
showing Bitcoin transactions related to money laundering network activity.
6.2.- Money laundering between the EU and South America
A high-profile money
broker is coordinating the collection of cash on behalf of a drug trafficking
network operating in Europe, where the cash collected is quickly exchanged into
cryptocurrencies and credited to a wallet controlled by a Colombian money broker,
who then pays the drug trafficking network. The payment itself is handled
through legal commercial structures and the usual banking system. In this case,
the Colombian money broker appears to be linked to legal structures run by a
does not appear to have direct access to customers, but oversees the actual
collection of cash by serving the money broker as a banking network. The
Chinese criminal network exchanges the cash collected into Bitcoins and credits
the funds to the Colombian broker's wallet. The process between the cash
pick-up in Europe and collection takes between 24 and 48 hours. The broker
charges 9%. (Gart, 2022)
case, a money laundering network organises the transfer and laundering of funds
between the EU and Latin America. The network arranges for the proceeds of
crime to be collected in Europe and delivered to Latin America via
cryptocurrencies and bank transfers. Funds are transferred through shell
companies set up in China and Turkey before reaching the customer, adding steps
to the money laundering process. (Pastor, 2022)
The main findings based
on research related to money laundering and crypto-currencies are as follows:
use of cryptocurrencies: The use of cryptocurrencies in money laundering
activities has increased in recent years. The pseudo-anonymous nature and ease
of cross-border transfer of cryptocurrencies have made them an attractive tool
for criminals who wish to hide the illicit origin of funds.
challenges: Economic crime related to cryptocurrencies presents significant
regulatory challenges. As cryptocurrencies operate across national borders and
are decentralised, traditional anti-money laundering regulations are difficult
technology and tracking: Although cryptocurrencies offer a degree of anonymity,
the underlying blockchain technology can also be used to trace transactions.
Law enforcement agencies have been working on blockchain forensic analysis
techniques to trace transactions and enable the money trail in money laundering
collaboration: As cryptocurrency-related economic crime crosses borders,
international collaboration is key. Joint efforts between different countries,
financial institutions and law enforcement agencies are required to effectively
combat money laundering in the cryptocurrency environment.
in regulation and supervision: Regulation and supervision of cryptocurrencies
should be strengthened to prevent and detect money laundering.
money laundering using cryptocurrencies poses significant challenges in the
fight against economic crime. However, efforts are being made at both the
technological and regulatory levels to address this issue and improve the
effectiveness of prevention and detection of money laundering in the
cryptocurrency environment. International collaboration and improved regulation
and supervision are crucial to combating this type of crime.
proposals, ideas or solutions that may be useful to combat this practice to
some extent, which is increasingly used by Criminal Organisations, are the
regulation and supervision: Regulations and compliance requirements for
cryptocurrency exchange platforms and related financial service providers
should be strengthened. This includes implementing robust know-your-customer
measures, ensuring that users' identities are verified and suspicious
transactions are reported.
cooperation: Collaboration among countries is crucial to tackle money
laundering through cryptocurrencies. Governments should promote international
cooperation and share relevant information on suspicious transactions,
investigations and best practices. This can help track and dismantle criminal
networks operating globally.
forensics technology: It is key to invest in the development of advanced
blockchain forensic analysis tools and techniques. This technology can help to
trace transactions and follow the trail of illicit money. By having experts
trained in the analysis of cryptocurrency transactions, suspicious patterns and
behaviour can be identified, enabling detection and early intervention.
and awareness-raising: It is important to raise awareness among cryptocurrency
users of the risks associated with money laundering and promote safe practices.
Education efforts can include awareness-raising campaigns on economic crime.
with industry: Financial institutions and cryptocurrency exchange platforms should
be allies in the fight against money laundering. Establishing partnerships and
collaborative arrangements with these entities can help to share knowledge and
best practices, as well as implement more effective measures to prevent and
detect suspicious transactions.
solutions can go some way towards combating money laundering using
cryptocurrencies. However, it is important to recognise that this is a complex
and evolving challenge, requiring a multi-faceted and ongoing approach to keep
up with the practices of criminal organisations and mitigate the associated
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