One of the main concerns around the development of cryptocurrencies is that they can be used for illicit purposes.
Even the U.S. Treasury Secretary, Steven Mnuchin, last January urged other countries to join forces to regulate them.
“My number-one focus on cryptocurrencies, whether that be digital currencies or Bitcoin or other things, is that we want to make sure that they’re not used for illicit activities,” he said during the World Economic Forum in Davos, Switzerland. “We encourage Fintech and we encourage innovation, but we want to make sure all of our financial markets are safe.”
U.S.-based platforms for exchanging Bitcoin and other virtual currencies must comply with anti-money laundering regulations. There are currently around 100 platforms registered with the U.S. Treasury’s Financial Crimes Enforcement Network. The rules require them to submit reports on suspicious financial activities.
Whenever the anonymity of cryptocurrencies is mentioned as a selling point, there are dissenting voices accusing that anonymity can facilitate unlawful activities. That’s a very valid point, and well worth exploring, but it doesn’t mean the issue is clear-cut.
Fiat currencies facilitate crime as well because they are also anonymous. If you have ever seen a mafia movie, you know that criminals almost always deal in cash and they do so in secret.
The reality of things is that no matter the system you have in place, criminals will try to abuse it, and for now cryptocurrencies are responsible for only a small fraction of illicit payments, because most of those who use them choose to live within the law.
Actually, a recent article published by economics professor Edgar L. Feige revealed that the majority of illegal transactions are carried out with cash. The paper further suggests that there is a “currency enigma”, since up to 85% of U.S. dollars are not kept by U.S. households (excluding the money held in banks).
Recently, a judicial panel of the U.S. Senate came to the conclusion that the use of cryptocurrency for illicit activities was tiny compared to the use of cash. According to Deputy Assistant Secretary of the Treasury, Jennifer Fowler, “Although virtual currencies are used for illicit transactions, the volume is small compared to the volume of illicit activity through traditional financial services.”
Besides, a study carried out last April by Qatar University, demonstrated how easy it is to track Bitcoin transactions, despite no sophisticated technologies were used to unveil the anonymity on the Bitcoin Blockchain. Unlike cash, which is often traceless, it's more difficult to move money around without leaving a trace on the Blockchain
And what's more, the FBI and other U.S. law enforcement agencies have been successful in catching criminals who use cryptocurrencies illegally; that's not the case on multi-million dollar scandals, where almost nobody go to jail.
While cryptocurrencies potentially represent a means to engage in criminal transactions, they are no more than a sand grain in the beach compared to Fiat currency, which remains the criminals’ coin of choice.
By Alejandro Cortés