Cryptocurrency - money laundering

What is cryptocurrency money laundering?

Money laundering has been carried out in various ways over the years. The use of cryptocurrency is the most recent method used by fraudsters to conceal the source of funds. Some crypto exchanges are regulated and should obtain information which identifies the owner of a cryptocurrency. However, if safeguards are not in place then it can become difficult to identify the owner and therefore the source of the money. Once the identity is disguised or hidden, it can then be used to make purchases of items to get 'clean' money back into the mainstream currency system.

When funds are illegally obtained, the first objective is to distance the funds as far as possible from the crime. In essence, the ‘dirty’ money must appear ‘clean’. This is often seen through the making of cash purchases for high-value items which are later sold so the money appears legitimate, or the introduction of illegal cash on the books of cash retail businesses. However, laundering has now moved to the digital world by utilising cryptocurrency.

The most simple way to launder cryptocurrency is through a method called 'off-ramps'. This is where cryptocurrency can be exchanged for currencies such as pounds or dollars. Once this transaction is complete, there is no way to trace the funds. The only way to track the money is through financial institutions. Once the currency is converted into cash the trail becomes almost impossible to trace.

A second, more complex method is to place the cryptocurrency into 'intermediary wallets' and 'mixers'. These work by taking cryptocurrency from multiple users, mixing the funds and returning an amount to each user equivalent to what they put in. The user receives the same amount of currency but it can now only be traced back to a mixer as opposed to them. The relative ease of laundering cryptocurrency across jurisdictions without leaving home has led to a very steep rise in the activity. A recent UK case involved the laundering of £21 million before arrests.

Cryptocurrency money laundering - the Law

Money laundering legislation derives from the Proceeds of Crime Act 2002 (POCA) and is defined as “the process by which the proceeds of crime are converted into assets which appear to have a legitimate origin so that they can be retained permanently or recycled into further criminal enterprises”.

The prosecution must prove that the property in question is criminal. Section 340 of the POCA explains that property is criminal if both of the circumstances below are present:

1. It constitutes a person’s benefit from criminal conduct or it represents such a benefit (in whole or part and whether directly or indirectly)

2. The alleged offender knows or suspects that it constitutes or represents such a benefit. At Part 7 of the Act and according to Section 327, a person commits a Money Laundering offence if they: a. Conceal criminal property; b. Disguise criminal property; c. Convert criminal property; d. Transfer criminal property; e. Remove criminal property from England and Wales or Scotland or Northern Ireland.

Criminal property can include money and other assets, including cryptocurrency. So, if a person were to conceal, disguise, convert, transfer or remove cryptocurrency which they knew or suspected had been created or used to mask criminal conduct, they would be guilty of an offence. In addition to the traditional legislation, the FCA has produced an updated anti-money laundering regime. This targets individuals and companies that provide crypto services and forces them to conduct extensive due diligence.

How do you defend cryptocurrency money laundering cases?

The general strategies behind defending individuals accused of cryptocurrency money laundering come from an understanding of the general defences.

What does the prosecution have to prove in a cryptocurrency money laundering case?

There are many elements that the prosecution must prove in order to prove money laundering. If just one of these can be questioned, the prosecution’s case will falter. For example, the prosecution must prove where the money originally came from. It is not enough to say that they believe criminal funds have been used to purchase cryptocurrency, they must prove where the funds have come from and that the person using them knew or suspected they were criminal.

This may seem like a high bar to meet, especially since there are measures allowing crypto users to be anonymous and therefore the money they use to purchase currency can become untraceable once it has been mixed.

What's the right defence approach to prepare a crypto money laundering case?

However, to ensure your case is handled properly, a proactive approach must be taken. Rather than accepting things for what they are, cryptocurrency solicitors ought to consider instructing financial experts to confirm information such as bank accounts, payments and amounts. Forensic analysis to 'follow the money' may play a very important role in your defence. Fraud defence solicitors must ensure they are well-versed in the cryptocurrency marketplace and understand the prosecution and defence approaches to money laundering via this method.

What sentence do people get for cryptocurrency money laundering cases?

There are several factors that can affect the length or type of sentence if somebody is convicted. The amount of money involved is an important one. The seriousness of the offence increases as the amount of money involved increases. How many money laundering transactions occurred, the level of sophistication and an individual defendant’s role in a money laundering operation are all taken into consideration.

The offence is punishable by up to 14 years' imprisonment or a fine or both, although sentences of the maximum length are rare, and are usually only given in the most serious cases where the sums of money involved exceed £10,000,000. For the vast majority of cases where the sums of money are below £300,000, prison sentences may be suspended.