A Bit(coin) dirty. The new means of money laundering

While such financial innovations may play a role in reshaping the future of the banking and finance sector, they create new market risks and vulnerabilities and may be (mis)used by criminals for hacking, money laundering, tax evasion, terrorism financing or trafficking in illicit goods.

Therefore, lawmakers need to adapt and keep pace with the new means of committing various cyber frauds.
The main vulnerability created by cryptocurrencies may derive from law enforcement authorities not sufficiently understanding them due to their high degree of anonymity. This prevents cryptocurrency transactions from being adequately monitored and stopped on time if criminal activity is suspected.
In an effort to keep up with the new methods of money laundering, the European lawmaker has performed a 5th revision of Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018 amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, published in the Official Journal of the EU - L 156/19.06.2018 ("AMDL5").

At the level of national legislation, the Romanian Parliament adopted Law No. 129/2019 to prevent and combat money laundering and terrorism financing (the previous Law No. 656/2002 being repealed), which has been in force since 21 July 2019 ("Law 129"). Under the AMDL5, Law 129 was recently amended by the Government's Emergency Ordinance No. 111/2020, in force as of 15 July 2020.

The new version of Law 129 therefore includes a definition of virtual currencies and subjects virtual currency exchange services and custodian wallet providers to customer due diligence requirements and the duty to report suspicious transactions to financial intelligence units.

Following the substantial amendment of Law 129, the National Bank of Romania has also updated its regulations, adopting Regulation No. 2/2019, also aimed at preventing and combatting money laundering and terrorism financing, in force as of 9 September 2019.

Finally, in harmony with the above legislation, Law No. 210/2019 on the issuing of digital currency was enacted and has been in force since 13 December 2019.

Given these amendments, the Romanian legislation is theoretically capable of combatting money laundering committed via cryptocurrencies. In practice, however, no crypto-criminals have yet been put on trial, proving that crypto money laundering cases remain a grey area for the judicial authorities.
In 2019, one of the largest crypto money laundering scandals occurred in Spain and the criminals were deferred to justice thanks to the common effort of the Spanish Civil Guard and Europol. In that case, regular currency gained through criminal activity was being laundered into cryptocurrency in order to conceal its illicit origin.

The criminal organisation provided large-scale money laundering services using Bitcoin ATMs, which fall outside the current financial regulations, not covering either cash machines or cryptocurrency exchange platforms.

The criminals obtained two ATMs from trading platforms and installed them in Madrid as part of a fake remittance and trading services office. After sending funds to the ATMs, the group would then insert cash in the machines to receive a QR code to claim cryptocurrency from those exchanges (basically crypto ATMs were used to launder dirty money). They would then give those funds to drug traffickers in Colombia.
A joint investigation resulted in the arrest of eight people with eight more being charged for their alleged involvement in the crypto money laundering ring.

During the searches, police found and froze a number of bank accounts controlled by the crime ring as well as four cold wallets and 20 hot wallets containing more than USD 10m. Authorities also seized 200 cannabis plants, two bitcoin ATMs, jewellery, 11 vehicles, computers, documents, devices, and nearly USD 19,000 in cash.

Cryptocurrencies transgress all borders, whether natural or virtual. Closer monitoring and international cooperation is therefore crucial to uncovering crypto money laundering and all connected crimes.

author: Magdalena Roibu