Fiat still used in majority of financial crimes, says US Treasury report

Despite widespread concerns that crypto is an instrument of crime, a recently released report from the US Treasury Department indicates that fiat still accounts for the majority of financial crimes.

Earlier this month, the National Money Laundering Risk Assessment, by and through the US Treasury Department, released three-year reports that led to in-depth discussions on money laundering.

The Treasury findings mention virtual currencies in detail, noting that the number of users and market capitalization of digital assets have increased significantly since the previous risk assessment in 2018.

However, these Treasury reports revealed that fiat currency and traditional networks still account for more criminal flows than cryptocurrencies.

“The use of virtual assets for money laundering remains well below that of fiat currency and more traditional methods,” the US Treasury explained.

Nevertheless, the use of virtual currency for online drug payment, criminal money laundering and sanctions evasion has increased. The recent US Treasury report appears to align with a recent crime report from Chainalysis, which said more funds were sent to criminal blockchain addresses in 2021 than any other year.

Counterintuitively, Chainalysis also found that the share of illegal money in crypto is only 0.15% of all transactions in 2021, dropping from 0.62% in 2020 to 3.37% in 2019 .

More recently, following Russia’s invasion of Ukraine, Western governments imposed harsh sanctions on Russia, but concerns quickly arose about the potential for individuals using cryptocurrency to evade penalties.

P2P transactions and privacy coins complicate investigations

Fraudsters and money launderers are increasingly engaging in peer-to-peer (P2P) transactions to evade AML/CFT safeguards, choosing to manage their own cryptocurrency wallets instead of handing over their cryptographic keys (important numbers that allow transactions to take place on the blockchain) for crypto exchanges.

The use of private coins like Monero hampers law enforcement efforts to trace illicit flows, the report says. Criminals can also use crypto exchanges that use mixers and tumblers to anonymize the source of funds.

Ransomware has increased during the pandemic

The COVID-19 pandemic has triggered a series of ransomware attacks, where victims’ sensitive information is encrypted and will only be decrypted after a ransom is paid.

The demanded ransom is often denominated in cryptocurrencies, in particular bitcoin. The funds are then routed through foreign cryptocurrency exchanges with few anti-money laundering measures before being cashed out.

Ransomware attacks gained traction in 2020 when Chainalysis reported over $406 million paid out to cryptocurrency trackers.

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