The Use of Cryptocurrency for Money Laundering :
Trends, Impact, and Regulations

Cryptocurrencies, known for their decentralization and privacy, have emerged as a revolutionary financial tool. However, these same attributes make them attractive for illicit activities, including money laundering (ML) and terrorist financing (TF). In 2024, approximately $14.3 billion was laundered through cryptocurrencies globally, marking a significant increase due to the rise of decentralized finance (DeFi) platforms and privacy coins.

This article explores the mechanics of crypto-based money laundering, its global and regional impact, and the measures taken by regulatory bodies, including FATF recommendations and India’s regulatory response

Learn more about mixing services and DeFi exploitation: Chainalysis Crypto Crime Report 2024.

Impact of Cryptocurrency-Based Money Laundering
1. Financial System Risks
  • Undermines trust in financial institutions.
  • Increases compliance costs for banks and VASPs (Virtual Asset Service Providers).
2. Criminal Exploitation
  • Terrorist groups and rogue states use cryptocurrencies to evade sanctions.
  • Reports indicate that North Korea laundered over $1 billion in stolen cryptocurrency in 2024 to fund weapons programs.

Detailed analysis of North Korea’s crypto activities:Chainalysis Crypto Crime Report 2024 [https://blog.chainalysis.com/reports/crypto-crime-2024]

3. Market Volatility
  • Criminal misuse impacts legitimate market adoption and increases regulatory scrutiny.
Global Regulatory Measures
1. FATF Recommendations

The Financial Action Task Force (FATF) plays a critical role in regulating cryptocurrency. Key recommendations include:

  • Recommendation 15: Requires VASPs to implement AML/CFT measures.
  • Travel Rule: Mandates VASPs to collect and share sender/receiver details during transactions.
  • Risk-Based Supervision: Jurisdictions must monitor high-risk entities.

Access FATF’s full recommendations: FATF Crypto Guidelines 2024.

2. U.S. and EU Regulations
India’s Approach to Cryptocurrency Regulation
1. AML and Regulatory Framework
  • Under the Prevention of Money Laundering Act (PMLA), 2002, cryptocurrency transactions are subject to AML compliance.
  • RBI mandates KYC verification and UBO (Ultimate Beneficial Ownership) disclosure for crypto platforms.

RBI Guidelines: Reserve Bank of India Crypto Circular 2024.

2. FATF Compliance
  • India has adopted FATF’s Travel Rule, mandating information-sharing for crypto transfers.
  • FIU-India actively monitors VASP activities.

FIU-India Overview: FIU-India Reports.

3. Taxation Policies
  • 30% tax on crypto gains and 1% TDS on transactions create audit trails, discouraging misuse.

Learn more: Income Tax Department of India.

Cryptocurrency offers innovation and efficiency but poses serious risks when misused for financial crimes.Regulatory bodies, including FATF, are taking proactive steps to curb crypto-based money laundering. India’s alignment with global standards, coupled with strict taxation and AML frameworks, demonstrates its commitment to combating financial crime.

To secure the future of digital finance:

  • Governments must harmonize regulations globally.
  • Financial institutions must adopt advanced compliance tools.
  • Continuous monitoring and evolving AML measures are essential.

Additional Resources:

Important to understand the following:-

1. VASP regulations & Travel rule
2. Implementing a Risk-Based Approaches
3. Mitigation Strategies
4. Regulatory framework
5. Useful tools for Blockchain Analytics & investigations

Useful links -
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