The use of cryptocurrencies for money laundering has frequently been labeled as the bad side of the invention, and recent FUD reported by the Wall Street Journal has cast a dark shadow over the future of cryptocurrencies.
According to the so-called, investigation carried out by the WSJ over the course of two years, roughly $90 million has passed through some 48 exchanges. Also, only a small fraction of the laundered funds ($2 million) has been recovered by law enforcement agencies while no suspects weren’t even arrested.
Unsurprisingly, highly anonymous crypto exchange, Shapeshift, was revealed to have processed $9 million of those funds. Shapeshift allows users to trade Bitcoin for other privacy-focused cryptos such as Monero.
So, even though enforcement agencies could count on the public data available on the Bitcoin blockchain to find culprits, there is little or no chance that they can trace them through other anonymous cryptocurrency ledgers.
Illegal funds gathered through ransomware attacks against businesses and government in North Korea was passed through Shapeshift.
Subsequently, the WSJ reported a similar incident, this time from an online entity named Starscape Capital. The anonymous owners of the website gathered $2.2 million from investors whom they promised massive gains after a certain period of time.
The Starscape website went dark, and the initiators of the scheme made away with investor funds that had been donated to an Ethereum wallet. To hide the funds, the recipients split the funds into two. The first amount was passed through an anonymous wallet and then onto a wallet on the Korean exchange, Kucoin.
The other stream of money ($517,000 worth of ETH) was passed directly through Shapeshift and converted into Monero. That means that the identity of the fraudsters remains unknown because Monero can be converted to Bitcoin or fiat without a trail.
Banks Laundered 10x More Money
However, Shapeshift CEO Erik Voorhes hit back at the study published by the Wall Street Journal via a tweet.
1/2 We are aware of the poorly-researched piece written against us by someone at WSJ. The implications are disingenuous and misleading. pic.twitter.com/IIyOjactGk
— Erik Voorhees (@ErikVoorhees) September 28, 2018
The chart attached to the tweet clearly points out that the firm’s alleged fraudulent involvement was nowhere near the involvement of traditional institutions such as banks.
Banks around the globe launder around $2.7 billion every day according to UN data while Shapeshift is alleged to have helped launder just $9m in two years.
Also, $9 million would only be 0.2% of the trading volume on the exchange over the period in consideration while banks score 2% – 5%.
Shapeshift to Tighten Up Despite CEO Opinion
In order to prevent similar illegal transactions from taking place on Shapeshift, the WSJ said it had submitted a list of the suspicious addresses which the exchange has terminated.
In addition, new Chief Compliance Officer Veronica McGregor confirmed that from October 1, the exchange would require users to provide identification in order to end anonymous trading.
This is contrary to opinions held by CEO Mr. Voorhes who told reporters in May that he doesn’t “think that people should have their identity recorded in order to catch occasional thieves.”
CCO, Veronica, however, cleared the wave by saying that the exchange will not run on the personal opinion of the CEO.
Even though this will bring an end to anonymous trading on the exchange, to a large extent, it will help the company meet up with KYC requirements.
It is almost certain that the issue of money laundering and cryptos will linger for a long time because of the anonymous nature of cryptocurrencies and the development of more privacy-focused blockchains like Monero.
However, fiats have had to deal with bigger cases of embezzlement of public funds as well as looting of government-owned assets. A popular case is that of the Estonian branch of Danske Bank, Denmark’s largest bank which conducted a massive money laundering operation worth around 200 billion Euros ($236 billion).
The freedom and independence that digital currencies hand to the public especially when it comes to managing their assets make them less susceptible to the type of fraud involving fiat.
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