Crypto and Bitcoin Laundering: A Discussion


Bitcoin was a massive innovation in the world that allows transactions to be processed faster, makes them easier to use, lacks third parties and middlemen, and has strong security. The technology behind Bitcoin is the blockchain, which is the decentralized ledger where all Bitcoin transactions are stored.

At the same time, criminals increasingly seek to exploit the latest technologies to their financial advantage. Bitcoin transactions actually have the ability to facilitate money laundering for criminals, as cryptocurrencies are made, transferred and stored online and allow cybercriminals to move their funds instantly across borders.

This article explains the interconnection between Bitcoin and money laundering, the warning signs, and how a lawyer can help you with your crypto problem.

Bitcoin as an attractive option for money laundering

One of the first questions many ask is why is Bitcoin such an attractive option for criminals looking to launder money?

The most important answer is that laundering cryptocurrencies through online exchanges and then converting them to cash is much easier than laundering bags of money often across borders. Online transactions know no borders and avoid having to physically move illegal money from one place to another. Hence, it is easy and convenient.

Second, there is a certain degree of anonymity associated with Bitcoin transactions. Although not 100% anonymous, these transactions are in fact pseudonym. This means that public Bitcoin addresses used for transactions are not recorded on behalf of individuals.

Transactions are publicly stored on the blockchain (the decentralized public ledger where all transactions are stored), but only the person making the transaction has access to the Bitcoin account and wallet. Therefore, federal agencies will find it difficult to link a particular Bitcoin transaction to an individual or entity. However, detection is not impossible.

To overcome this obstacle, the criminals will use Bitcoin mixing services, which allow the individual to “mix” their Bitcoins with other users and scramble the connections between the addresses of the individuals.

The goal is to make it virtually impossible for anyone to detect the origin and destination addresses of these illegal Bitcoin transactions. This allows criminals to cash in without fear of ever being identified. In addition, many online crypto wallet and exchange providers have little or no anti-money laundering (“AML”) or Know Your Customer (“KYC”) regulations, which is a very attractive option for traders. cybercriminals.

Third, the lack of regulation or inconsistent regulation of the crypto sphere makes the detection of large Bitcoin transactions more unlikely, both during the initial Bitcoin transaction and when criminals seek to ‘cash in’ and convert their Bitcoins into cash. .

Traditional financial and banking options are highly regulated at both state and federal levels. On the other hand, cryptocurrencies are poorly regulated. This makes the use of cryptocurrencies attractive to criminals who think they can escape the regulation and scrutiny of various law enforcement agencies at home and abroad.

Warning signs of crypto laundering

Crypto laundering is a crime. Despite the lack of federal guidance on this issue, many law enforcement agencies rely on existing laws and traditional investigative tools to uncover cases of crypto laundering. Below are some warning signs of crypto laundering:

  • Transfer of crypto funds to wallets in unregulated or less regulated jurisdictions;

  • Several high value transactions occurring within a short period of time;

  • Bitcoin or other transactions totaling amounts slightly less than the amount that would trigger the reporting requirements;

  • Immediately withdraw cryptocurrency deposits;

  • New accounts funded with an amount that is immediately withdrawn;

  • Transactions with several crypto-currencies on many accounts;

  • Deposits from unregulated jurisdictions or jurisdictions with poor AML and KYC regulations; and

  • A wallet linked to multiple credit card accounts under the names of different people or a wallet linked to several bank accounts.

The above warning signs should be taken into account by those seeking to do business with a cryptocurrency firm, by law enforcement agencies investigating certain individuals and entities, and when making business cases. AML reviews within crypto service providers.

Additionally, in 2020, the Financial Action Task Force (“FATF”) released a Money Laundering Warning Indicators report that aims to assist crypto holding and exchange companies as well as authorities. financial.

How a Lawyer Can Help You Defend Against Crypto Laundering Claims

Federal agencies, including the Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”), have been particularly keen to investigate suspected cases of crypto laundering fraud. On June 29, 2021, as part of a DOJ investigation, “Doctor Bitcoin” pleaded guilty to operating an illegal business that converts money into cryptocurrency. This underscores the importance of retaining the services of an attorney experienced in defending against allegations of crypto laundering. Here are some examples of how a lawyer can help you with your crypto problem:

  • Investigate fraud involving crypto-currencies;

  • Advice on Security Token Offerings (“STO”) and Initial Coin Offerings (“ICO”);

  • Valuation of cryptocurrencies and assets;

  • Assistance in the purchase of goods or other assets with cryptos;

  • Advice on AML and KYC regulations;

  • Verification of internal and external compliance;

  • Advice on wills, trusts and inheritance of crypto assets and cryptocurrencies;

  • Drafting of compliance documents or documents relating to coin issuance;

  • Advice on client due diligence;

  • Advise on identification and verification procedures involving cryptographic transactions; and

  • Advice on monitoring crypto transactions for compliance with applicable regulations, for suspicious activity and for certain warning signs of money laundering.

“Using cryptocurrencies like Bitcoin to facilitate online transactions has both advantages and disadvantages. While crypto transactions offer speed, ease of use, and low transaction costs, they can also facilitate sophisticated money laundering programs, illegal purchases, and ransomware attacks. Specifically, Bitcoin laundering is becoming a profitable and highly attractive option for cyber criminals who wish to convert illegally obtained cryptocurrencies into legitimate cash. While there are few laws regulating cryptocurrencies, many federal agencies will target companies and individuals suspected of participating in fraudulent crypto transactions under already existing laws. Consequently, the consequences can be just as serious: fines and penalties, restitution orders, injunctions and possibly prison terms. – Dr Nick Oberheiden, founding lawyer of Oberheiden PC


Cryptocurrency laundering is becoming a serious problem for law enforcement agencies as cybercriminals continue to exploit new and emerging technologies for financial gain. Criminals are drawn to cryptocurrency, Bitcoin, because it is easy and convenient to move digitized money, because these transactions are very difficult to trace, and because there is a lack of consistent regulation. concerning crypto-currencies.

Identifying red flags is an important protection that individuals, businesses and law enforcement agencies need to consider. In fact, law enforcement agencies have been particularly zealous in investigating suspected cases of cryptocurrency laundering on the basis of certain red flags.

Oberheiden PC © 2021 Revue nationale de droit, volume XI, number 287


About Alexander Estrada

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