The False Narrative Of Bitcoin’s Role In Illicit Activity


Senate Finance Committee

WILMINGTON, DELAWARE – DECEMBER 1: US Treasury Secretary Janet Yellen speaks … [+] during an event to appoint President-Elect Joe Biden’s economic team at the Queen Theater on December 1, 2020 in Wilmington, Delaware. (Photo by Alex Wong / Getty Images)

Getty Images

Janet Yellen, the election of President-elect Joe Biden as Secretary of the Treasury, said today at a Senate Finance Committee hearing that cryptocurrencies are “a particular concern” when it comes to criminal activity and terrorist financing.

Yellen continued: “I think many (cryptocurrencies) are mainly used for illegal financing, at least in the transactional sense. And I think we really need to look into how we can limit their use and make sure that anti-money laundering does not take place through these channels. “

This isn’t the first time the cryptocurrency industry has heard this misconception and made a collective eye catcher. Yellen may believe that cryptocurrencies are “mainly used for illicit funding,” but the data shows otherwise.

Wrong story

Most of the cryptocurrency is not used for criminal activities. According to an excerpt from Chainalysis’ 2021 report, criminal activity accounted for 2.1% of total cryptocurrency transaction volume in 2019 (remittances valued at around $ 21.4 billion). In 2020, the criminal share of all cryptocurrency activity fell to just 0.34% (USD 10.0 billion in transaction volume).

The United Nations estimates that between 2% and 5% of global GDP (US $ 1.6 to 4 trillion) are linked to money laundering and illegal activities annually. This means that criminal activity with cryptocurrency transactions is much lower than with fiat currencies and that their use is decreasing year on year.

Bitcoin golden physical coin illustration on US dollar banknotes. (Photo by Nicolas … [+] Economou / NurPhoto via Getty Images)

NurPhoto via Getty Images

Jake Chervinsky, General Counsel of Compound Labs, said to me, “It’s disappointing to hear Dr. Yellen reiterates the misconception that crypto is primarily used for illegal activities. Your statement is proven to be wrong. . Even so, it’s important to remember that crypto is a relatively minor issue compared to anything else the finance department is responsible for. As such, she probably hasn’t spent time digging into it in depth. “

Privacy coins

Still, some regulators could point to Zcash and other “anonymous” privacy coins as a source of money laundering concerns. Privacy coins often use zero knowledge protocol to protect customer information from another party in a transaction. For example, Zcash works with an “opt-in” data protection function, in which users can decide whether the fund information is transparent or shielded.

Last year, Rand Corporation, a nonprofit research organization that contributes to improving policy and decision making through research and analysis, conducted a study of use cases for cryptocurrency and privacy coins. The report found that, despite the “perceived attractiveness of cryptocurrencies for money laundering purposes. . . An estimated 99 percent of cryptocurrency transactions are processed through centralized exchanges, which, similar to conventional banks or exchanges, can be subject to AML / CFT regulation. “

The report concluded that “Zcash is a cryptocurrency that uses knowledge-free evidence to provide enhanced privacy to its users. However, there is little evidence to suggest that this is being exploited by malicious actors. ”The report pointed out that Bitcoin was more of a privacy issue than coins, and merely noted that criminals choose to“ go there go where the money is ”.

Cash and traditional payment methods

But if we really want to focus on where the money is, we should look at the government backed physical fiat. According to a report by SWIFT (Society for Worldwide Interbank Financial Telecommunications) from 2020, “Cases of money laundering by cryptocurrencies are relatively low compared to the amounts of money laundered using traditional methods,” the report says.

Just last week, FinCEN announced a US $ 390,000,000 enforcement action against Capital One COF for both willful and negligent violations of the Bank Secrecy Act (BSA) and its by-laws.

Capital One headquarters after net sales remained flat

The signage will be at the headquarters of Capital One Financial Corp. in McLean, Virginia, USA … [+] Photographer: Andrew Harrer / Bloomberg

© 2019 Bloomberg Finance LP

Capital One admitted that it deliberately failed to implement and maintain an effective anti-money laundering (AML) program to protect against money laundering. Capital One also admitted that it was deliberately unable to file thousands of Suspicious Activity Reports (SARs) and negligently thousands of Currency Transaction Reports (CTRs) related to a specific business entity known as the Check Cashing Group. The violations occurred from at least 2008 to 2014 and resulted in suspicious transactions in the millions not being reported in a timely and accurate manner, including proceeds related to organized crime, tax evasion, fraud, and other bank laundered US financial system.

“The errors described in this enforcement action are egregious,” said Kenneth Blanco, director of FinCEN, in a statement. “Capital One has deliberately disregarded its legal obligations in a high-risk business.”

The Ministry of Finance has the task of enacting rules that are effective in combating money laundering and terrorist financing. Saying that cryptocurrency is “a special concern” doesn’t mean looking at the bigger picture.