A minimum of 3 characters is required

Cryptocurrency's Money Laundering Risks

Ferda Kusetogullari - Money laundering_1280x720-01.png

Traditional transactions are rapidly moving towards cashless innovations, such as cryptocurrency transactions, digital asset management, and Web3 technology. Now, the fintech world faces heightened vulnerabilities to money laundering threats, particularly with the prevalent use of mobile devices worldwide.

Yet, the allure of these innovations raises a red flag: an increased risk of financial crimes. This precarious balance poses a threat to financial stability, impacting transparency, trust, productivity, and loyalty.

Moreover, the COVID-19 pandemic has accelerated these trends, ushering in a new era of payment methods. In this era, where the digital payment landscape expands beyond tradition, risks and rewards coexist, shaping the future of finance. 

What is Cryptocurrency?

Cryptocurrency is a decentralised digital currency system that operates as virtual tokens or coins that are stored in your digital wallet. Modern cryptocurrencies, such as Bitcoin, can make it simpler for criminals to mask the origin of criminal proceeds and transfer illicit funds without being detected. Cryptocurrency, the fastest-growing digital asset, poses risks to businesses and institutions, including fraud, economic sanctions, and anti-money laundering. 

Cryptocurrency mobile payment is the most alluring method for developing and underdeveloped nations, thanks to the use of mobile phones and smart devices. Besides, the rate of financial crimes such as money laundering and terrorist financing has increased with the development of Web3 technology. So, what are the most common methods criminals use to launder cryptocurrencies? 

Smurfing: A large sum of money is divided into smaller amounts and spread by a group of people through multiple transactions to the other accounts to clear the money.

Mixing and Blender: Money from different sources is mixed through single addresses in cryptocurrency transactions, splitting and blending continuously to make it virtually impossible to trace. 

Offshore Transactions: Offshore transactions are used by criminals by employing different layering methods to carry funds from one country to another, where labour costs are cheaper.

Fiat Exchanges: Fiat exchanges encompass platforms, ranging from peer-to-peer to non-compliant, where users can trade their fiat currency for cryptocurrencies via blockchain and Web3 technology.

Nested Crypto Exchanges: It refers to users opening one or more accounts across different cryptocurrency exchanges, often with the intention of bypassing Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements.

Cross-Chain Bridges: This solution refers to the transfer of cryptocurrencies or assets between blockchain networks, acting as a bridge between two separate blockchains to facilitate the exchange of information and increase interoperability in the decentralised ecosystem.

Privacy-Oriented Coins: Privacy-oriented coins are specifically designed to empower users with enhanced privacy and anonymity during transactions, making them difficult to trace. 

Crypto Casinos are designed for online gaming enthusiasts who utilise digital gambling platforms with cryptocurrency payments. Criminals may exploit these platforms to convert their illicit funds into legal ones. 

3 Stages of Cryptocurrency Money Laundering

With the evolution of technology and the increasing ease and convenience of digital platforms, money laundering techniques have become more accessible through cryptocurrencies and Web3 technologies. Criminals continually adapt, learning ways to bypass anti-money laundering (AML) compliance and Know Your Customer (KYC) measures without jeopardising their ill-gotten gains, including methods such as placement, layering/hiding, and integration. 

Placement Stage: Criminals use this stage to launder their illicit funds by converting them into cryptocurrency to appear legitimate. For example, criminals receive illegal payments in cryptocurrency on their digital wallets by selling illicit products or services.

Layering or Hiding Stage: This phase aims to make the funds hard to trace. Criminals use techniques to transfer illegal funds, obscuring the digital assets' origins by dispersing cryptocurrency across different digital wallets, which makes it hard to identify the holder of the wallet. 

The integration stage represents the final phase where laundered money is deemed 'clean,' allowing criminals to indulge in a luxurious lifestyle through the purchase of cars, jewellery, and real estate. 


According to the latest FATF Report from 2020, Cryptocurrency money laundering red flags for the sanction screening to suspicious activity reporting (SARs):

  1. Funds received from a third party may be either untraceable or not subject to strict Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations.
  2. The use of a shared crypto wallet to move money between multiple users' bank accounts and credit cards is a telltale sign of a group.
  3. Multiple incoming transfers from various cryptocurrency wallets to a single account indicate a red flag regarding compliance.
  4. Linked crypto wallets that do not match the crypto wallet holder may indicate mismatched profiles.
  5. Repeatedly engaging in large-value transactions within a brief period without adhering to international KYC or CDD standards
  6. Rapid transfer of deposits to unregulated countries without conducting customer due diligence (CDD).
  7. Monitoring unusual transaction patterns to detect suspicious activity.
  8. Verifying the legitimacy of the source of funds for ongoing monitoring and due diligence process
  9. Observing unusual behaviour from senders and recipients.
  10. Transferring funds to crypto service providers based in regions with lax rules and regulations.
  11. Frequently converting cryptocurrency to fiat money without taking into account potential exchange losses.

Cryptocurrency and The Influence of Social Media

With the global population surpassing 8 billion, approximately 4.89 billion people, or nearly 60 percent of the total worldwide population, are active social media users, which makes users aware of the latest news trends like cryptocurrency, Web3 technology and blockchain technology. As cryptocurrency gains popularity through endorsements by content creators, influencers, and celebrities, it sparks curiosity among people eager to explore opportunities for easy money. However, this surge not only introduces uncertainty, but also raises concerns, as fraudsters increasingly employ techniques within the cryptocurrency space for money laundering. 

This new digital financial landscape functions as a bridge, leveraging social media to influence not just people but also businesses to invest in cryptocurrency, resulting in potential financial losses. Simultaneously, criminals exploit this environment as a shield, utilising various techniques to launder money between accounts. This makes a lot of businesses susceptible to money laundering and raises concerns about how they will safeguard their accounts from criminals who transfer cryptocurrency funds between accounts in the future. 

Generative AI Will Improve Security for Cryptocurrency Transactions, Identity Verification, and Fraud Prevention.

While cryptocurrency poses inherent risks for businesses, the increasing complexity of monitoring activities makes it challenging to detect criminals and assess potential threats. Fortunately, the advent of AI brings a powerful solution. With its ability to detect fraudulent activities, enhance security, improve the user experience, and enable long-term monitoring of market changes, businesses can leverage AI as a robust tool for effective management in the future. 


InfoCredit Group has formed a strategic partnership with CipherTrace, the global leader in cryptocurrency financial intelligence. Through this collaboration, their primary objective is to concentrate on improving the safety, liquidity, and stability of crypto assets by eliminating criminals, fraudsters, drug dealers, terrorists, and other malicious actors from virtual currency platforms. This initiative aligns with broader industry efforts aimed at promoting the legitimacy and security of cryptocurrency transactions.