Written by
Kanga
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Financial crime and cybercrime have been topics of interest in the industry for years. In the present day, with the development of new technologies and the emergence of cryptocurrencies, new challenges arise in this regard. The concept of “cryptocurrency crime” is increasingly being discussed in discussions about global finance. Are we dealing with a new type of crime? This article will present statistics on financial crimes and the use of cryptocurrencies in this context.
What is Money Laundering?
First and foremost, let’s consider whether the concept of “cryptocurrency crime” is valid and whether cryptocurrencies are more preferred tools for criminals than ordinary traditional money.
Money laundering in cryptocurrencies represents only a fraction of the total transaction volume, but the number of money laundering suspicions continues to rise. According to a Chainalysis report, money laundering accounted for only 0.05% of the total cryptocurrency transaction volume in 2021, indicating that money laundering is a scourge of practically all forms of economic value transfer.
In 2022, the share of illegal activities related to cryptocurrencies increased from 0.12% to 0.24%, and the volume of illegal transactions reached an all-time high. Among the elements of banking fraud schemes, so-called “mules” are a key element of money laundering, allowing criminals to hide the origin and destination of money.
However, it is worth noting that money laundering with fiat currencies accounted for as much as 5% of the global GDP, while illegal activity related to cryptocurrencies remains a small share of the total volume, below 1%.
Banks started facilitating emergency loans and simplifying creditworthiness checks, opening up new opportunities for fraudsters. Interestingly, even 90% of all bank accounts opened are by cybercriminals who use them for money laundering. This percentage is continually increasing. Criminals employ various methods to obtain the personal data of bank customers, including data breaches that are available, for example, on the dark web at affordable prices. The COVID-19 pandemic has caused many financial problems, leading to a rapid increase in financial mules.
Financial mules are one of the key elements of banking fraud schemes and play a crucial role in money laundering. Who are these “mules”? They are individuals who enable criminals to launder dirty money by moving illegally obtained funds to their bank accounts. Their task is to “clean” the money, making it difficult to trace its true origin. Subsequently, the funds from mule accounts are further moved, allowing criminals to evade law enforcement.
The Scale of Crime in Poland in Recent Years
Over the past decade, Poland has also experienced increased crimes, including money laundering, corruption, and cybercrime. In 2011 alone, 128 individuals were convicted of money laundering, while in 2017, the police detected 32,000 crimes related to corruption and abuses by officials.
According to a report from the Polish National Police Headquarters, described by “Rzeczpospolita,” the number of corruption cases involving officials, municipal guards, and other public servants in Poland has significantly increased compared to 2016. According to the data, corruption cases increased by 17.5 thousand. The most common offenses are bid manipulation and neglecting controls. This corruption causes financial damage to the state and moral harm and undermines public trust in public services.
According to a SWIFT report, the annual revenue from cybercrime is estimated at $1.5 trillion. On the other hand, a 2021 Chainalysis report estimates that money laundering with fiat currencies accounted for as much as 5% of the global GDP. As indicated in the report by the General Inspector of Financial Information from the same year, there was a more than 37% increase in the number of notifications to the prosecutor’s office regarding suspicions of money laundering crimes, as well as a more than 100% increase in the number of accounts freezes.
Although statistics and market research results are important sources of information, it should be remembered that the actual scale of financial crime may be significantly larger than what official data suggests. Criminal activity, including money laundering, usually occurs secretively, hidden from law enforcement agencies, making it difficult to estimate its extent accurately. Moreover, criminals often employ various methods to conceal their activities and transfer money from one country to another, further complicating the detection and prosecution of such crimes. Therefore, it is necessary to develop practical tools and strategies that enable better detection and prevention of financial crime, especially in the digital era where more transactions occur online.
How do cryptocurrency companies counteract this practice?
According to a report published by sumsub, financial criminals face a more challenging task in hiding their activities from law enforcement due to the intervention of cryptocurrency companies. They have implemented the following measures to combat money laundering:
- Utilizing automated KYC solutions: Up to 79% of cryptocurrency firms use automated KYC solutions to fulfill their AML obligations and quickly onboard users to their platform. Additionally, 76.9% of companies plan to transition from manual verification to computerized processes to expedite the process. About 67% of cryptocurrency firms aim for their onboarding process to take less than 3 minutes.
- Employing multiple verification solutions: 40% of the surveyed firms utilize 2-3 verification solutions, not limiting themselves to just one option.
- Increasing verification budgets: Over half, 55% of the companies, plan to increase their funding for verification to enhance user security.
- Alternative address verification approaches: Requesting users to submit documents confirming their address may lead to abandonment so companies can offer alternative methods such as address verification using geolocation services.
- Dividing verification into levels: 80.6% of cryptocurrency firms split identity verification into several stages, reducing the number of drop-offs during onboarding and securing transactions.
Statistics on financial crime worldwide demonstrate that the fight against money laundering and cybercrime remains an ever-increasing issue. Is the term “cryptocurrency crime” justified? While there is cryptocurrency-related crime worldwide, it is not a pervasive phenomenon in the realm of global crime and only accounts for a small portion of transactions involving cryptocurrencies. However, statistics show that most financial crimes, including money laundering, are still conducted using traditional currencies. Money derived from illegal activities can be laundered using both traditional currencies and cryptocurrencies, but the traditional currency still plays a pivotal role in the process.
It is worth noting that cryptocurrencies are a relatively new phenomenon, and as their popularity grows, new types of associated crimes may emerge. Therefore, it is necessary to develop effective regulatory tools, such as MiCA, and counter threats to prevent illegal activities in the cryptocurrency sphere.