Share

Crypto-currencies and criminality: myth or reality?

The recent bust of a worldwide international paedophile ring using Bitcoin payments highlighted one of the key fears surrounding crypto-currencies: their use by criminals.

Social networking giant Facebook is keen to get in on the act by launching a digital currency called Libra.

But US Treasury Secretary Steven Mnuchin has aired his ongoing opposition to the move, saying many concerns remained unresolved, including "the issue of money laundering". Despite tighter regulations and increased vigilance by the authorities, illegal activities related to virtual currencies remained "significant", Madeleine Kennedy from the research firm Chainalysis, told AFP.

1% of transactions illegal 

A Chainalysis report published in January found that in 2018, 1% of Bitcoin transactions - the most widely used cryptocurrency - involved illegal activities.

The equivalent of $600m was also spent using Bitcoin on the dark web, a set of hidden networks where a multitude of illicit products, including weapons and drugs, are traded.

In comparison, the global turnover of drug trafficking is estimated at several hundred billion dollars.

Kennedy believes the use of Bitcoin for criminal purposes was partly based on a "misunderstanding".

The confidentiality reputation of the most famous cryptocurrency is unrivalled, with all transactions recorded in an unforgeable public ledger, the block chain.

It is "more transparent than some traditional financial systems and certainly more than cash", she added.

The British and US authorities last week announced more than 300 arrests in 38 countries as part of an investigation that led to the dismantling of an unprecedented child pornography ring.

Investigators analysed the block chain and succeeded in "de-anonymising Bitcoin transactions", according to Ron Fort, the head of criminal investigations in the US tax services.

Concerns about Monero 

Though Bitcoin is still the reference currency for criminals because of its popularity, they are turning to less transparent alternatives, such as Monero, which began life in in 2014, according to the European law enforcement agency Europol.

Monero's users can remain anonymous until they need to interact with a crypto marketing platform or invest their funds with a "wallet" - the equivalent of an account for virtual currencies.

It is phenomenon that also worries the German finance ministry, which recently published a document warning that anonymous cryptos could become "a real alternative to Bitcoin".

Monero, whose capitalisation is still 160 times lower than Bitcoin, uses a complex architecture that makes transactions "much more difficult to track", said Kennedy.

"But no more than the many shell companies in the many tax havens," said Emilien Bernard-Alzias, a lawyer at Simmons & Simmons, a specialist in financial markets.

"We have always seen both legal and technical arrangements to conceal money transfers from the courts," he told AFP, adding that only cash can be considered "perfectly untraceable".

Also, since Monero does not allow large quantities of money to be bought, criminals are encouraged to convert their funds and must, therefore, use service providers subject to anti-money laundering regulations.

Unlike currencies that have made anonymity a marketing feature, Facebook has repeatedly said in recent months that Libra will be transparent and comply with the authorities' requirements.

Libra "will clearly not be ideal for laundering dirty money", said Bernard-Alzias, although it will probably need to use block chain analysts "to satisfy regulators", added Kennedy. 

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.97
-0.3%
Rand - Pound
23.99
-0.4%
Rand - Euro
20.51
-0.2%
Rand - Aus dollar
12.36
-0.0%
Rand - Yen
0.13
-0.4%
Platinum
906.75
+1.1%
Palladium
1,015.63
+1.4%
Gold
2,209.38
+0.7%
Silver
24.63
-0.1%
Brent Crude
86.09
-0.2%
Top 40
68,240
+0.8%
All Share
74,437
+0.7%
Resource 10
57,023
+2.5%
Industrial 25
103,861
+0.6%
Financial 15
16,492
-0.2%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders