Crypto currencies are becoming an increasingly popular choice for investment and given the paltry rewards that the banks offer and troubling times predominantly caused by the Covid Crisis there is little wonder. In addition to poor interest, banks have suffered huge reputational damage as they were widely perceived to just be looking out for themselves during the financial crisis of 2008 and everything that followed
Everyone has heard of BitCoin, but many outside the community have no idea that it goes way beyond that. Crypto can be acquired in two basic ways it can be traded, that is bought and sold on an exchange, after making an initial fiat desposit. Alternatively it can be acquired in the form of rewards through such projects as Publish0x, LBRY and Presearch or faucets such as Cointiply.
One of its key features is that it has changed the control dynamic from the bank / financial institution to the individual. Profits (and losses) can be made through a high level of market volatility and one of the issues the establishment has is a loss of control – and nobody likes that. However, it goes way beyond that.
Crypto investing is characterised by anonymity and while many exchanges have upped their game when it comes to both AML and KYC procedures they are widely considered to be a threat. In the form of crypto, money can easily be moved between wallets and across borders and is difficult to track. AML processes require high levels of due diligence which in turn means they love transparent money trails. Crypto trading creates obscurity and therefore fits with the primary concern of AML specialists – that is the concealment of funds.
These concerns are best exemplified in the 2006 shutdown of crypto exchange Liberty Reserve which saw US Authorities seize $6bn in assets that were being used on the Silk Road which could be described as Ebay on the Dark Net. The Silk Road has become infamous for trading drugs, but also has had some association with illegal weapons and terrorism.
So to summarise, as far as the authorities are concerned the threats can be divided into three specific categories of increasing significance.
Firstly and probably most obviously funds can be concealed from the tax authorities and are an ideal vehicle for tax evasion which is illegal (not to be confused with legal tax avoidance). Part of the problem here is a lack of country legislation. Frankly the authorities don’t know what to do with it. In the UK there is some vague guidance that Capital Gains Tax should be applied, but it is all very confusing. The easy solution would be, for tax authorities to bracket crypto trading with share dealing. Problem solved.
Secondly money can be moved around easily enough, across borders, using secure crypto keys outside the regular banking system and without the need to carry cash means that it is an obvious means to launder dirty criminal money. The aim of the money launderer is always to take dirty money and legitimise it or at the very least conceal it, which is where a crypto exchange comes in.
Thirdly and most concerning is that the same crypto infrastructure can be used to fund terrorism. What makes it even harder for authorities is that terrorists often require little funding and such small funds don’t raise flags. For every massively funded 9/11 there are dozens of lone wolf or small scale attacks which at most may involve hiring of a vehicle. These are much harder to track and consequently a greater threat. One of the interesting things about terrorist funding is that all too often they seek to de-legitimise funds which may have been raised through supportive charities and other donations. It needs to disappear and one of the most effective ways of doing this is through crypto.
So it can be seen that the authorities have a number of genuine concerns and as a crypto enthusiast I too believe that it is important that the crypto community takes responsibility. One of the things we enjoy is being liberated from the system, but at the same time we must remain transparent and ever improving AML and KYC policies can only help, so long as they don’t impede our rights to trade and grow independent of the system.