BTM Compliance is too Rigid for Money Launderers
--
Bitcoin ATM Growth is NOT a Boon for Criminals
When blockchain forensics and analytics company CipherTrace recently released their “Cryptocurrency Crime and Anti-Money Laundering Report, Spring 2020,” a leading digital currency news site responded with an article on how the growth of Bitcoin ATMs might mean a lot more money laundering.
We admit the blog post had a clickbait-worthy title and proved to be an interesting read, but as the biggest of those Bitcoin ATM companies — fully licensed with the Financial Crimes Enforcement Network (FinCEN) and running required Anti-Money Laundering (AML) and Know Your Customer (KYC) compliance programs — we have a slightly different analysis.
One Bad Apple
Sure, there was one guy who operated an unlicensed BTM and exchange, using his non-compliant setup to trade $25 million worth of crypto for criminals, including drug dealers, and other darknet users. 25-year-old Kunal Kalra, a.k.a. Kumar, Shecklemayne and Coinman, pleaded guilty to four felonies last August in a plea bargain. Failing to license the machine was one of those felonies. Another was failing to maintain a compliant AML program.
He was meeting his “clients” on a peer-to-peer (P2P) marketplace based out of Finland — the kind that used to be the only way to trade cryptocurrency for cash. But since they allow personal dealings that are totally unregulated, anything goes. In fact, CipherTrace says just that one site used by Kalra, “LocalBitcoins, one of the largest peer-to-peer marketplaces, received over 99% of these criminal funds.” And Finnish exchanges in general ranked #1 for illicit activity, with over 12% of incoming Bitcoin funds being sent from criminal sources.
Still, even with all that illegal activity on the P2P marketplace, it’s not like using non-compliant BTMs is a rampant practice. It’s like … zero. “This is believed to be the first federal criminal case charging an unlicensed money remitting business that used a Bitcoin kiosk,” stated the Central California Department of Justice in a press release about the Kalra case.
So, obviously, one bad apple doesn’t mean that every BTM out there is being used for money laundering or other criminal activity — especially the big networks like Coin Cloud. In fact, it really couldn’t happen, because in the U.S., AML and KYC processes for crypto kiosk companies are strict. And the large BTM operators, including Coin Cloud, follow them to the letter.
Travel Rule
Not only that, but starting now, similarly strict AML processes must be followed worldwide, as the Financial Action Task Force (FATF) Cryptocurrency Travel Rule kicked in this month. The FATF is the global AML watchdog, and the Travel Rule states that all Virtual Asset Service Providers (VASPs) have to follow the same requirements as standard financial institutions with regards to collecting customer information during transactions.
And even without the Travel Rule, stricter AML procedures seem to have been working. CipherTrace confirms, “the global average of criminal funds sent directly to exchanges dropped 47% in 2019. This suggests that many criminals are finding it harder to offload their illicit funds directly into cryptocurrency exchanges, indicating effective implementation of AML measures around the world.”
If all that seems to go against the pseudo-anonymous nature of crypto, FATF stresses that, “As the guidance makes clear, relevant authorities should co-ordinate to ensure this can be done in a way that is compatible with national data protection and privacy rules.”
