Crypto crime landscape shifts to bigger threats targeting smaller numbers
The use of cryptocurrencies for illicit activities from ransom money, money laundering and funding for terrorist activities continues unabated. The tightening regulation does not appear to be making enough of a difference yet.
Over the past eighteen months, the Covid crisis appears to have made matters worse as the authorities shifted their focus to fighting the pandemic.
While the Financial Action Task Force (FATF) continues to warn about illicit use of virtual currencies, even the task force’s member nations – including some of the leading G20 economies – have failed to transpose the latest FATF Standards into their domestic regulation.
In European Union, the development of the financial crime regulatory and legislative environment continues apace. Their current regulatory focus is on the Sixth Anti-Money Laundering Directive (6AMLD), for which the implementation deadline was June 2021.
The changes introduced by the 6AMLD are nowhere as wide-ranging as the previous 5th Anti-Money Laundering Directive (5AMLD).
Key changes under 6AMLD:
- Dual criminality for specified offences & greater co-operation.
- Harmonisation & clarification of predicate offences.
- Extension of criminal liability to legal persons.
- A stricter punishment regime overall.
- Additional offences including aiding & abetting.
The UK, of course, has already chosen to opt-out. On the basis that its legislative framework is already compliant with all the 6AMLD provisions.
The 6AMLD mainly dwells on definitions of criminality and of persons against whom criminal charges could be brought. In the former case, against a harmonised list of predicate offences, these can be considered criminal in the territory where the money laundering took place, even if they are not regarded as illegal in the territory where the actual offence took place.
In total, the 6AMLD lists twenty-two specific predicate offences, which are particular criminal activities that serve to enable more serious crimes. And there is now a single definition of predicate offences across all EU member states.
The concept of criminal liability has now been extended to legal persons, causing new concerns for senior executives. Crucially, individuals in key positions (business leaders, representatives, decision-makers or those with authority to exercise control) may also be held accountable for failings, such as inadequate supervision, control, or oversight, resulting in money laundering and facing additional sanctions.
There are now also longer jail terms for money laundering offences, and now, enablers of money laundering can be prosecuted under aiding and abetting provisions. However, these developments will not shift the dial much, if at all, for cryptocurrencies.
In the world of cryptocurrency and blockchain, the real game-changer was the 5AMLD, which brought currency exchanges and digital wallet providers within the scope of money-laundering regulations.
With that came the requirement to register with local regulators and comply with the same standards of customer due diligence, risk management and suspicious activity reporting like other financial institutions. It is still too early to assess the impact of those changes, but they have certainly caused consternation in the crypto landscape.
While Binance, the world’s largest crypto exchange, has been banned from operating in the UK by the FCA, it continues to trade with UK investors through its website, which is based abroad. It also continues to make highly questionable claims about its fight against financial crime.
CipherTrace’s 2020 report shows that fraud and misappropriation make up the most significant proportion of blockchain related crimes.
Although, the overall proportion dropped sharply between 2019 and 2020 to less than 0.5 per cent of all cryptocurrency based criminal activity. However, such statistics are dubious given the ever-changing methods that criminals use to hide their illegal activities and also that some of the funds in blockchain could have been the proceeds of previous crimes.
Moreover, the criminal landscape appears to be shifting away from a small number of large and coordinated efforts to a larger number of threat actors carrying out crimes of much lower value.
The Dawes Centre for Future Crime research at UCL in the UK seems to validate this conclusion. It found that certain activities, such as investment scams, fake crypto wallets, and crypto money mules, are now considered easier to defeat and less feasible than before.
So, what does this all mean for cryptocurrencies? Whilst the world focuses on tackling the pandemic and the EU is distracted by the 6AMLD, it seems that the regulatory spotlight remains elsewhere.
About the author
Vivek Dodd is co-founder and CEO of Skillcast, the e-learning and compliance training RegTech which has trained more than one million staff members globally. With clients including RBS, UniCredit, Barclays, Aviva and The Royal Mail, Skillcast provides crucial training and compliance programmes to hundreds of SMEs. Dodd has commissioned insightful national research about return to the office trends in the light of the pandemic which has been featured across international media.