Cryptolaundering is not a unique term but a growing concern for the cipher businesses. Over half of the world has moved towards digitization and is investing in virtual currencies. This leads crypto businesses to encounter financial fraud, including money laundering and terrorist financing, by using virtual assets.
One of the critical aspects of cipher platforms is Bitcoin, which is a virtual currency used to trade and conduct financial transactions. These assets prevent law enforcement agencies from tracking the black funds. However, the whole process is executed in multiple phases termed as stages of money laundering. Read the blog to understand the role of black money in cryptocurrency and how it impacts the virtual market.
What is Crypto Money Laundering? – Explained
There is no specific model for executing black money. However, it affects many digital market areas with simpler yet complicated methods. The traditional money laundering process includes concealing the original sources of funds before getting exposed to the legal bodies. In crypto money laundering, the approach is the same, but the method is executed through digital platforms and involves the virtual assets of the entities.
How do Criminal Organizations Launders Black Money Using Virtual Assets?
Criminals employ numerous techniques to proceed with the black money. One of the digital assets is Bitcoin, and the others include cryptocurrencies and NFTs. The method of laundering funds works by rapidly shuffling transactions through multiple wallets and entities’ accounts. This whole strategy makes the process complicated and makes it challenging to track the original destination of the funding source. Companies with non-compliant crypto exchanges encounter significant losses and heavy penalties. Furthermore, learn how cryptocurrencies are used in illegal fund processing.
How Cryptocurrency is Employed in Money Laundering Stages
Undoubtedly, cryptocurrency is one of the most critical aspects and sources of money laundering used to proceed with their illegal funds. Cryptocurrency has been exploiting the market with its involvement in money laundering. Similar to financial systems operated conventionally, cryptocurrency’s unidentified nature enables wrongdoers to cover the sources of illegal funds.
Moreover, highlighting the revolutionization of blockchain technology is crucial, but it has been observed that progress and regulatory interventions have made the misuse of cryptocurrency challenging. Since the crypto platform is a vital channel for money laundering, integrating AML solutions can help firms combat these crimes.
Discover the 3 Stages of Money Laundering in the Crypto Industry
Let’s dive into the prime stages of money laundering and how cryptocurrency fits into these phases:
Placement
Proceeding large amounts of illicit money into the legal system initially is risky, and this phase of concealing black money is crucial. However, illegal funds are first criminally acquired into the financial systems in the money laundering placement stage. These high-risk attempts can make the unique attributes of the cryptocurrency market more attentive. Also, it enables black money dealers to encounter fewer risks during the first step of funds proceedings.
Layering
The primary purpose of this phase is to create complexities for the legal systems to detect illegally obtained money. One of the methods of cryptocurrency money laundering involves “chain hopping,” in which criminals employ the cross-chain bridge to proceed illegal assets from one blockchain to the other. Since chain hopping is the best-known cryptocurrency, it is bought at advanced exchanges using bitcoins or other forms of cipher cash. Layering in money laundering is the most crucial step, which coats the illegally acquired money, making it nearly impossible to track.
Integration
This phase is known as the reintroduction of clean money into the financial systems by developing the impression that the funds are obtained from legal resources. In this stage, the money is returned to the imposters as legally earned. It is crucial for criminals to proceed legally. However, they still manage to do so. Furthermore, a simple methodology involved in making this illegal money look legal is to present the funds as a result of a profitable venture or any other currency adjustments.
Preventive Measures to Combat Cryptolaundering
To prevent money laundering and reduce the risk factors associated with the crypto industry, companies are required to implement the following strategies:
- Develop AML programs complying with all rules and regulations
- Prioritize the KYC process and integrate CDD methods for high-risk profiles
- Upon inspecting any suspicious pattern, report it to the concerned authorities
- Incorporate advanced software and tools
- Establish strong risk assessment approaches
- Train the team accordingly.
Final Thoughts
Cryptocurrency has enormous potential to transform conventional financial structures into digital systems in the future. However, the risk of illegal money proceedings is high and should be addressed; AML compliance and other regulatory acts can combat all stages of money laundering. Moreover, in cipher businesses, AML and other compliance professionals are familiarizing themselves with the unique attributes of crypto laundering and methods of illegal funding while offering robust solutions to protect businesses against financial crimes.