A common misconception for people outside of the crypto community is that cryptocurrencies are used for illicit and fraudulent activities. While a decade ago, cryptocurrencies were largely associated with the dark web and drug trafficking, these days the modern crypto landscape is much more regulated.
In fact, most countries these days have integrated rules and regulations pertaining to the use of cryptocurrencies, from conducting business with crypto to outlining the tax requirements.
The industry is also required to complete stringent KYC (Know Your Customer), AML (anti-money laundering), and anti-fraud procedures when working with crypto, leaving little to no room for criminal activity or criminal networks involved.
Understanding the intricate world of crypto compliance: avoiding serious and organized crime
Staying compliant with cryptocurrency regulations is vital for all companies in the industry, as failure to do so can result in hefty fines and loss of business. Established businesses take KYC/KYB/AML processes very seriously in order to protect their reputation and minimize risk.
Leading market players are not the only ones that must adhere to these tight regulations. Every platform that enables crypto transactions in most crypto-friendly nations is required to follow such protocols. These entail thorough KYC/AML procedures and establishing the identity of its clients.
The company is required to comply with local requirements if it wants to operate legally. Another reason why using a regulated platform to manage your cryptocurrency is always the best option.
At the same time, B2B clients have entirely different expectations. KYB serves to evaluate every potential partner thoroughly, working out many details and investigating the company's directors.
A few compliance tips for businesses:
- Ensure your staff and partners have a basic understanding of crypto security measures.
- Make sure your policies are always up to date and submitted on time.
- Ensure monitoring procedures are up to date and operating optimally.
- Review your past progress and adapt your plans as needed.
Crypto vs fiat currency: law enforcement investigations
According to a study, less than 1% of illicit funds used in financial crimes in 2019 were carried out using digital assets (even less in 2020). Considering how cryptocurrency operates, this number may surprise you. What's more surprising is that most of these crimes were related to scams; less than money laundering, drug trafficking, terrorist financing, and any other major major criminal use of cryptocurrency.
Money laundering statistics currently attribute $1.6 billion worth of cryptocurrencies being involved in financial crimes, compared to the estimated $1.6 trillion laundered through cash annually.
Responsible crypto enterprises and crypto financial institutions are frequently eager to cooperate with authorities and aid in the fight against financial crimes and criminal activity. Tether's chief technological officer was quick to respond when a token swap platform was hacked, immediately taking action on a $33 million USDT transaction related to the incident. A few weeks later, the assets' owners were reimbursed.
Blockchain surveillance firms, such as Chainalysis and Elliptic, employ specialized software for the following purposes. They collaborate with it to gather blockchain data and examine it for possible illegal behavior. This plays a vital role in helping law enforcement trace digital currency transactions related to the Dark Web and stop illicit funds flowing straight into the wrong hands.
Does crypto hinder law enforcement investigations?
Contrary to popular belief, cryptocurrency transactions are not anonymous. In fact, many cybercriminals have been caught because their identities were eventually traced. For example, the Justice Department was able to track down 63.7 BTC paid by Colonial Pipeline Company to hackers after its computer systems were disabled and caused fuel shortages and a gas price surge across the East Coast. This criminal use of cryptocurrency was quickly investigated and prosecuted.
As blockchain technology uses cryptography to secure its transactions, there is another misconception, and that is that crypto transactions are anonymous, when in reality they are pseudonymous. This means that all transactions on the blockchain are visible, however, they are not tied to identities. So, should you know someone's wallet address you can see their transaction history. This provides law enforcement access to transaction history and the chance to conduct on-chain forensics.
The good news is that law enforcement is getting better at tracking down illicit funds each year. And the cryptocurrency sector is only eager to assist.
The recent rapid growth of global regulations has helped foster the growth of the cryptocurrency industry. Digital currencies are actually traceable and don't account for a large majority of financial crimes, despite what many people believe.
Responsible crypto platforms take measures to prevent illegal activities, protect users from fraud and other risks, and encourage them to stay financially responsible. This includes cooperating with law enforcement, as well as offering training and rewards to users.
While cryptocurrencies have played a small role in being used to fund illicit activities, it pales in comparison to the large number of fiat currencies used annually in fraudulent and illegal activities. That's not to say you should stop using fiat currencies, and the same applies for crypto.
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