Cryptocurrency Scandals and Anti Money Laundering

Blog / Cryptocurrency Scandals and Anti Money Laundering

Cryptocurrencies have become increasingly popular in recent years, with many individuals and businesses using them for transactions and investments. However, the anonymous nature of cryptocurrencies has also made them an attractive option for criminals seeking to launder money and finance illicit activities. Cryptocurrency scandals have made headlines around the world, highlighting the challenges that law enforcement agencies and financial institutions face in regulating and monitoring these digital assets. 

AML crypto regulation gaps enable financial crimes such as money laundering, terrorist financing, bribery, fraud.

Overview of Cryptocurrency Scandals and Money Laundering Cases

1. Plus Token Ponzi Scheme 

Plus Token generated $ 2.9 billion in 2019, covering 64 percent of the volume of cryptocurrency crimes. Plus Token was a cryptocurrency Ponzi scheme camouflaged as a high-return investment program. The operation ended in June 2019. Plus Token executives abandoned the plan, withdrawing about $ 3 billion in cryptocurrency. This Ponzi scheme scam caused Bitcoin prices to drop drastically in 2019. 

Plus Token had a large following, especially in Korea and China. Investors unfamiliar with cryptocurrencies often prefer Plus Token. Because Plus Token offered great rewards that encouraged its victims to "invest." The program provided between 9 percent and 18 percent return on investment per month. 

2. KuCoin Hacking 

The KuCoin hacking took place on September 26. The cyber-hacked cryptocurrency provider KuCoin has securely stored its cryptocurrency from the web and in hot wallets instead of remote cold wallets. However, the firm team found that cryptocurrency from hot wallets, including Bitcoin, Ethereum, and ERC-20 tokens, was emptied after spotting some major withdrawals. 

It is estimated that at least 150 million dollars of crypto money were stolen in this cyber attack. The company stated in its statements that it does not approve of the amount lost. Also, KuCoin CEO and co-founder Johnny Lyu said 84% of stolen cryptocurrency funds were recovered.  

3. Thodex Scandal

Turkey recently faced a Thodex scandal. Last week, the cryptocurrency exchange platform, Thodex, announced on its website that the exchange would be closed for a few days to provide better service to users. 

However, users who could not access cryptocurrency accounts and withdraw their money were suspected of scams. It was determined that Thodex CEO Özer received $ 2 billion in funding from 391,000 investors and fled abroad. Thousands of Turkish users have filed criminal complaints because they are victims of the exit plan. However, it was determined that the stolen funds were "irrevocable" in the legal process. 

4. Silk Road Scandal

Silk Road was one of the dark web's largest marketplaces and was run by a person named Ross Ulbricht. However, Ulbricht was arrested in 2013, and the charges included drug trafficking, money laundering and other crimes. Ulbricht allegedly sold hundreds of millions of dollars in drugs through Silk Road.

5. BitMEX Scandal

BitMEX is known as a cryptocurrency derivatives exchange and was founded in 2014 by Arthur Hayes, Ben Delo, and Samuel Reed. However, allegations emerged that BitMEX was not in compliance with US law, and its executives faced charges. BitMEX became the first cryptocurrency exchange to be indicted by the federal government in 2020, accused of violating anti-money laundering laws.

6 FinCEN Files Leak

The FinCEN Files were leaked documents from FinCEN, a crime fundraising network operated by the US Secret Service. The leak revealed that major banks around the world are facilitating the movement of around $2 trillion in dubious funds. In the FinCEN Files leak, it was determined that banks are also providing money flow to cryptocurrencies.

7. Binance Investigation

Binance is one of the largest cryptocurrency exchanges in the world and was under investigation by the US Department of Justice in 2021. Binance has been accused of facilitating illegal activities and has come under pressure from various regulatory authorities.

potential AML risks associated with cryptocurrency exchanges and red flags for AML and CFT

Challenges in Regulating Cryptocurrency for AML/CFT

Regulating cryptocurrency for anti-money laundering (AML) and countering the financing of terrorism (CFT) is challenging due to several reasons:

  • Lack of Regulatory Consistency: Cryptocurrency exchanges operate across borders, making it difficult for regulators to enforce consistent AML/CFT regulations. While some countries have implemented regulations, others have not, leading to regulatory arbitrage where exchanges can move to jurisdictions with weaker regulations.
  • Anonymity and Pseudonymity: Cryptocurrency transactions can be anonymous or pseudonymous, making it difficult to identify the parties involved in the transaction. This anonymity makes it easier for criminals to launder money through cryptocurrency transactions.
  • Technical Complexity: Cryptocurrency transactions involve complex technical processes that can be difficult for regulators to understand and monitor. Cryptocurrency wallets can also be stored offline, making it harder to trace transactions.
  • Lack of Financial Institution Involvement: Cryptocurrency operates outside the traditional financial system, making it difficult for financial institutions to monitor and report suspicious activity. This lack of involvement makes it harder for regulators to detect money laundering through cryptocurrency.
  • The emergence of New Cryptocurrencies: The rapid emergence of new cryptocurrencies makes it difficult for regulators to keep up with the changing landscape and develop effective regulations.

To address these challenges, regulators are working on developing more robust AML/CFT regulations for cryptocurrency. However, it will take time to develop effective regulations that balance the need for transparency with the benefits of innovation in the cryptocurrency industry.

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