Financial investigators from Interpol, Europol and 30 other nations recently met in response to a report titled “Drugs and the Darknet” by Europol to discuss ways to reduce the increasing levels of criminal activity related to cryptocurrencies.
This report showed that 40% of illegal online transactions utilized cryptocurrency mixers, and tumblers. The use of these services has increased because they allow users to better hide illicit transactions by mixing potentially identifiable or “tainted” cryptocurrency funds with others for the purpose of obscuring the trail back to the fund’s original source. Other than Bitcoin, cryptocurrencies such as Cloakcoin, Dash, PIVX and Zcoin have automatically added mixers and tumblers into their blockchain network.
While current cryptocurrency laws are still weak, countries are slowly taking steps to create stronger laws. On December 20, 2017, the European Council and European Parliament agreed to make amendments to the EU Fourth Anti-Money Laundering Directive which would require that all online currency exchange platforms follow beneficial ownership reporting requirements. Ewald Nowotny, Governing Council member of the European Central Bank, has acknowledged the need for stricter regulations on cryptocurrency stating that while AML and Know Your Customer (KYC) regulations for financial institutions are “absurd,” those for cryptocurrencies are severely lacking.
The need to start monitoring mixers and tumbler services which clearly violate AML regulations and impede law enforcement efforts was also a highlight of this meeting. The investigative branch of the Dutch tax authority (FIOD), moved to have mixers and tumblers recognized as an indication for money laundering and to assume that the use of such services suggests a guilty party.
An upcoming blockchain company, Chainalysis Inc, whose goal is to combat money laundering and fraud, has created a software that flags suspicious activity of digital currencies and offers tools for further investigation. The software can also assess the risks of potential bank customers by separating blockchain activities into different categories. This kind of software and technology can help banks be more accepting of cryptocurrency businesses without the fear of unknowingly being involved with possible criminal activity conducted by their customers.
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