The United States Treasury Department recently released a comprehensive risk assessment report underscoring that traditional cash transactions remain the predominant method for money laundering among criminal organizations. The report, which examines money laundering, terrorist financing, and proliferation financing, reveals that despite advancements in digital assets, criminals continue to rely on the anonymity, stability, and ubiquity of physical cash for illicit financial activities. Beyond popular belief criminals using digital assets to launder money is not smart as digital assets are traceable assets unlike physical fiat currency.
Three separate reports within the assessment went into the multifaceted landscape of criminal financial activities, providing insights into the acquisition, laundering, and movement of funds both domestically and internationally. One of the key findings emphasizes that digital asset usage for money laundering remains significantly lower than the usage of fiat currency.
Bulk physical cash smuggling, involving the transport of U.S. dollar banknotes, is highlighted as a prevalent method employed by criminal organizations. The report indicates that 1,480 seizures of currency and monetary instruments, totaling $18 million, occurred in inbound movements of funds, while 1,010 outbound currency and monetary seizures, totaling approximately $53 million, were recorded in 2023. The anonymity and ease of transport associated with physical cash make it an attractive choice for criminals unlike digital assets.
The report also sheds light on the utilization of private aircraft for smuggling bulk physical cash, noting that U.S. registered aircraft are less likely to undergo inspection by law enforcement. Small airports along the Mexican border are identified as areas lacking security presence, enabling illicit cash smuggling through air transport.
While acknowledging that the use of digital assets in money laundering is currently less prevalent than traditional methods, the report underscores instances of misuse in cases involving ransomware, scams, drug trafficking, and human trafficking. Cryptocurrencies are deemed an emergent means for transferring and laundering illicit proceeds, with a specific focus on compliance failings by cryptocurrency exchanges and service providers. Making it more important than ever for digital asset exchanges of both a centralized and decentralized nature to implement AML, KYC and anti-terrorism rules on their platforms.
The high-profile $4.3 billion settlement involving Binance.US and U.S. authorities in late 2023 is cited as a notable example of compliance shortcomings leading to the abuse of exchanges for money laundering. The report emphasizes the importance of Anti-Money Laundering (AML) obligations and highlights decentralized finance (DeFi) protocols as an emerging avenue for transferring and laundering illicit funds. Cryptocurrency mixing services are identified as tools used by criminals to obfuscate transaction details, same could hold true for privacy tokens such as Monero, Zcash and DASH.
The inclusion of AML and anti-terrorism measures in the decentralized finance space is underscored as a critical aspect of safeguarding against illicit activities. The digital assets industry needs to take a proactive stance, this hold trues for both centralized and decentralized digital asset exchanges. The leader in adhering to these measures in the centralized digital asset exchange space is Coinbase, they have been proactive in their approach. On the decentralized digital asset exchange front, HootDex, has been proactive as well and is implementing protocols to enhance transparency and compliance within the industry.
This is an important topic and should bring clarity to those that are not well versed in digital assets, they need to understand that digital assets such as Bitcoin, Ethereum, Litecoin, Solana, Pecu Novus and Avalanche are not anonymous, transactions can be traced as transparency is abundant. However it is truly the combined efforts of layer-2 developers, blockchain operators and digital asset exchanges to work together to combat fraud, ransomware and other criminal activities in the digital asset space the best way possible. It is easier to say than do but we do have some committed developers that are working on just that solution across all blockchains I would venture to guess.
Digital Assets Desk