Highlights
Despite the continued adoption of digital assets and the maturation of the industry, there are still those who argue that cryptocurrencies are one of the main tools for financial crimes, overlooking evidence of the minor and decreasing role of cryptocurrencies in the illicit transactions.
Europol data suggests that real estate, luxury goods and cash-intensive businesses serve as the main instruments of money laundering by major EU criminal networks. Cryptocurrencies only contribute a minor percentage.
Reports from NASDAQ and the US Treasury Department illustrate the wide disparity between illicit funding volumes in traditional sectors and the digital asset space, of which the latter makes up a small portion of the total.
It is 2024 and under the leadership of BlackRock, the world's largest asset manager, Wall Street firms are competing to offer mainstream investors exposure to bitcoin through regulated, publicly traded products. Around the world, millions of people are using digital assets to protect the value of their savings amid steep inflation and devaluation of their national currencies, as well as to take advantage of low-cost, near-instant cross-border money transfers. Traditional spaces ranging from charitable giving to the art industry are being redesigned and improved thanks to the new efficiencies and capabilities offered by the use of blockchain technology.
And yet, strange as it may seem, there are still people who refuse to acknowledge the progress that the digital asset industry has made in recent years. They resort instead to worn-out notions that were never true or that no longer make any sense. They argue that cryptocurrencies are nothing more than an online casino whose main use case is to facilitate money laundering and various other crimes. This causes the most radical of these skeptics to request the regulation of digital assets until their extinction or outright prohibition.
Not even reliable data such as the low percentage of 0.34% of illicit crypto transactions in 2023, compared to 0.42% the previous year, or the low and decreasing value of digital assets received by addresses illegal activities year after year, are usually enough to convince staunch detractors. After all, most of the solid data we can show originates within the industry.
The reality, however, is that even unaffiliated data sources provide enough evidence to argue that cryptocurrencies are far from being the primary choice for bad actors when facilitating financial crimes. Let's look at some statistics that show that the most common instruments of crime are those assets and tools that no one would suggest banning.
Europol: EU criminal networks prefer real estate
The European Union Agency for Police Cooperation (Europol) is responsible for supporting EU Member States in the fight against severe international and organized crime. As such, it deals with large-scale criminal and terrorist networks operating throughout the region. The agency's newly published report provides a comprehensive assessment of the operations of Europe's most threatening criminal networks.
What these criminal organizations, specialized in activities such as drug trafficking, online fraud and property crimes, have in common is the need to legalize illicit profits. By assessing the prevalence of various tools that criminal networks use for this purpose, Europol experts found that real estate is the predominant vehicle for money laundering (41%), followed by luxury goods and high-traffic businesses. cash.
While cryptocurrencies made the list with a 10% share of laundered funds, they are still a far cry from what cryptocurrency demonizers want you to believe. Furthermore, it is logical to expect that the next iteration of Europol's criminal networks report will show a lower proportion of funds laundered through channels related to digital assets when considering the year-on-year decreasing trends observed in most other crime areas.
So, the next time you hear someone imply that cryptocurrencies should be banned because they are a safe harbor for money laundering, you can tell them that home sales, luxury watches, or your neighborhood newspaper should be banned first.
Below 1% of global illicit funds
Blockchain analytics firm Chainalysis estimates that the total value of digital assets received by illicit addresses throughout 2023 was $24.2 billion, up from $39.6 billion dollars in 2022. These numbers represent both assets stolen during hacks in the crypto industry and funds sent to wallets that Chainalysis considers illicit: addresses associated with ransomware groups, fraudulent operations, darknet markets, terrorist financing and, the most large by volume, sanctioned entities and jurisdictions. This is perhaps the most rigorous and comprehensive assessment of the scale of criminal activity associated with digital assets that we have today.
$24 billion seems like a lot of money, but how much is it in the context of all the financial crimes? NASDAQ's recent Global Financial Crime Report lays out the total amount of illicit funds, both cryptocurrency and fiat currencies, that the global financial system processed last year: $3.1 trillion .
While these two numbers are not perfectly comparable, as they are drawn from two different reports using different methodologies, they should at least give us a pretty good idea of the relative scale of the two phenomena. 24.2 billion is less than 1% of 3.1 trillion. More specifically, the volume of illicit funds in cryptocurrencies according to Chainalysis constitutes, to be exact, 0.78% of the total volume of global illicit funds according to NASDAQ.
For context, the NASDAQ report attributes more than $485 billion of 2023 total losses to various forms of scams and fraud schemes. One category that generated an amount of illicit funds comparable to that associated with digital assets is bank check fraud, which caused individuals and businesses to lose $26.6 billion last year, mostly in the Americas, where checks still exist. they are widely used.
In other words, checks, an ancient technology that still exists mostly because of the notable inertia of banking practices, are responsible for more financial crime than an entire innovative asset class that continues to be described as a safe harbor for criminals. Wouldn't it be time to ban those paper eyesores?
Treasury: Conventional money laundering methods far outperform crypto
Each year, the United States Department of the Treasury publishes its National Risk Assessments on Money Laundering, Terrorist Financing, and Proliferation Financing, which detail vulnerabilities key to illicit finance and the risks that threaten Americans. The 2024 Money Laundering Risk Assessment, while noting existing and evolving trends in the risks associated with cryptocurrencies, explicitly states that "the use of virtual assets for laundering of money is still much lower than that of fiat currencies and more conventional methods that do not involve virtual assets.
The majority of the report focuses on persistent and emerging money laundering risks related to conventional domains, such as misuse of legal entities; the lack of transparency in some real estate transactions; the lack of comprehensive AML/CFT coverage for relevant sectors, such as investment advisors; complicit professionals who misuse their positions or businesses; and weak regulatory compliance and oversight at some regulated financial institutions.
All of these areas represent known structural ills inherent to the traditional financial system and corporate practices. This highlights how financial crime is a systemic problem rather than something that could be attributed to a specific type of technological infrastructure or asset class.
A solution more than a problem
As we look to the future of finance and consider the direction the industry is taking, it is essential to constantly review and debunk outdated and misleading perceptions about digital assets. Far from being the predominant instrument for financial crime, cryptocurrencies represent a relatively insignificant part of global illicit funds. The data shows that traditional methods and tools, such as real estate transactions and old banking practices, are much more relevant channels for illicit activities such as money laundering.
Instead of singling out cryptocurrencies as scapegoats for systemic financial crimes, we should pay more attention to these traditional domains and the problems rooted in them. Despite lingering skepticism, compelling data from several unaffiliated sources highlights significant developments in the crypto industry and how far it is from being an ideal frontier for bad actors. A systemic problem demands systemic solutions, and digital assets should be seen as part of this solution rather than a problem.