Common AML Schemes: Virtual Currencies

Money laundering and financial crimes pose large risks to financial firms, both from a reputational and regulatory perspective. However, these schemes can take many forms making it difficult for firms to do their due diligence to protect themselves and their investors.

We’ve put together a series of the most common forms of money laundering and financial crimes and what firms can do to combat each one.

Virtual currencies

Virtual currencies, also known as cryptocurrencies, are digital currencies that use cryptography for secure financial transactions. Virtual currencies are decentralized, meaning they are not issued or regulated by a central authority such as a central bank. Virtual currencies have gained in popularity in recent years due to their perceived benefits, including faster and cheaper transactions and anonymity for users. However, virtual currencies have also been associated with money laundering activities.

Money launderers may use virtual currencies to transfer funds between accounts or to facilitate illegal transactions in a way that is difficult to trace. Virtual currencies may be particularly attractive to money launderers due to their decentralized nature and the lack of regulation in some jurisdictions. For example, a money launderer may use a virtual currency to purchase illegal goods or services, and then use the same or a different virtual currency to launder the proceeds of the illegal activity. The complex and decentralized nature of virtual currencies can make it difficult for law enforcement and financial institutions to trace the movement of funds and identify the parties involved in these transactions.

To combat the use of virtual currencies for money laundering purposes, financial institutions and law enforcement agencies may need to develop specialized expertise and techniques for tracking and investigating these types of transactions. It is also important for financial institutions to have robust anti-money laundering (AML) policies and procedures in place to detect and prevent the use of virtual currencies for money laundering purposes.

Virtual currency and money laundering trends

• Increased use of virtual currencies: Money launderers are increasingly using virtual currencies, such as Bitcoin, to facilitate their activities. This can make it more difficult for law enforcement and financial institutions to detect and prevent money laundering, as traditional AML systems and controls may not be designed to address these types of transactions.
• Anonymity: Virtual currencies may offer anonymity to users, which can make it more difficult for law enforcement and financial institutions to trace the movement of funds and identify the parties involved in transactions.
• Decentralization: Virtual currencies are decentralized, meaning they are not issued or regulated by a central authority such as a central bank. This can make it more difficult for law enforcement and financial institutions to regulate and monitor virtual currency transactions.
• Complex financial structures: Money launderers may use complex financial structures, such as trusts or shell companies, in conjunction with virtual currencies to conceal the true ownership of assets or the source of funds. These structures can be difficult to detect and may require specialized expertise to unravel.
• International aspects: Money laundering involving virtual currencies may have international aspects, as launderers may attempt to transfer funds or assets across borders in an effort to conceal their illicit origin. This can make it more challenging for law enforcement to detect and prevent money laundering and may require the cooperation of law enforcement agencies in multiple jurisdictions.
• Increased regulation: There is an increasing focus on the role of financial institutions in combating money laundering and the financing of terrorism, and this includes virtual currencies. Financial institutions may be subject to increased regulatory scrutiny in this area.
• Cybercrime: Money launderers may use cybercrime techniques, such as phishing scams or malware attacks, to gain access to financial accounts or to facilitate the transfer of funds between accounts using virtual currencies. This can pose a risk to legitimate users of virtual currencies and make it more difficult to trace the movement of funds.

Read about other common AML schemes

• Account takeover
• Business email compromise
• Environmental, social, and governance (ESG)
• Investment Companies
• Real Estate
• Cybersecurity Tactics
• Elder Financial Exploitation
• Trusts

How we help

ACA’s AML and Financial Crimes practice offers advisory services and solutions to assist financial services firms in addressing threats and regulatory obligations associated with financial crime. We work with investment advisers and broker-dealers, among others, to assess risk, develop policies and procedures, and perform independent tests and gap analyses.

Our support can incorporate our ComplianceAlpha^® regulatory technology and managed services to help your firm meet its data screening, ongoing monitoring, remediation and reporting needs.

Reach out to your ACA consultant, or contact us to find out how ACA can help you meet your AML requirements.