AS LONG AS dirty money exists, so does money laundering. Between 800 and 2 billion dollars, or 2 to 5% of global GDP, is washed away each year, estimates the United Nations Office on Drugs and Crime. Criminals exchanged money for precious metals, wrong invoices, flushed money in casinos or just tied it to their bodies and flew to places where banks don’t ask questions . Now they have a new detergent: cryptocurrencies.
Data like this suggests that crypto-laundering is still a small part of the picture. But the attractions of cryptocurrencies – global availability, speed and irreversibility of transactions, and the ability to mask identities – are obvious. Rob Wainwright, head of Europol, the European police agency, estimated that 3-4% of the continent’s annual criminal revenue, or £ 3-4 billion ($ 4.2-5.6 billion), are crypto-bleached. He thinks the problem will get worse. The United States Drug Enforcement Administration believes that international gangs are using cryptocurrencies more.
Dirty money – from drug trafficking, for example – can be washed away by converting it into crypto, splitting it into smaller amounts, and moving it across the crypto-sphere, perhaps through multiple virtual currencies. Dirty cryptography, for example from a ransomware attack, can be traded in the same way – often at high speed (“atomic swaps”) and in small pieces (“micro-laundering”) – until it is clean enough to be converted into ordinary money.
The authorities are slowly catching up. Last month, a Briton was jailed in the Netherlands for taking 11 million euros ($ 13.2 million) in dirty bitcoins from criminals, converting them into regular money through his bank account, withdrawing the money and giving it back to the crooks, minus a denomination. But professional launderers use more sophisticated methods, often mixing old and new ways to evade detection, says McGuire of the University of Surrey.
Europol recently discovered how European crime bosses were using crypto to pay a Colombian drug cartel for cocaine. European thugs have visited crypto exchanges to convert euros into anonymous virtual currencies. These were sent to a digital wallet registered in Colombia and exchanged for pesos on an online exchange. The pesos were withdrawn in cash, which local “money mules” distributed over dozens of bank accounts, in amounts small enough to avoid suspicion. The bosses of the cartel got the money by withdrawing the money or by wire transfer.
“Sticking £ 10,000 in your underwear and flying to Zurich is still a fairly common and easy way to launder money,” says McGuire. But he warns that as governments scramble to take money off the streets and crack down on other means of washing money, cyber laundering may well be the future.
Correction (April 30, 2018): The original version of this article stated that Michael McGuire was working at the University of Sussex. In fact, he’s at the University of Surrey. Apologies.
This article appeared in the Finance & Economics section of the print edition under the title “Digital Detergent”