Cryptocurrency use by organized crime is on the rise according to a new report by the International Narcotics Control Board.
“Cyberspace and cryptocurrencies are emerging as a new frontier for organized criminal groups battling for control of the vast criminal markets for drugs, arms, sex and persons,” said the INCB.
The INCB is an quasi-independent UN organization that monitors government compliance with anti-drug treaties. The Annual Report 2021 was released in March and INCB President, Ms. Jagjit Pavadia, discussed its findings at the 65th session of the Commission on Narcotic Drugs.
The report looks at the overall international situation regarding the global illegal drug trade, such as trafficking, regulation, and decriminalization. It specifically mentions the use of cryptocurrency by Mexican cartels, as well as other organized crime groups in Europe and Asia.
They use it in combination with electronic banking to transfer and launder money. It is also often used to anonymously buy illegal goods over DarkWeb.
Europol, the European Union law enforcement agency, said money laundering is the most common use of cryptocurrency by criminal organizations. Its 2022 report said it is hard to know how much crypto activity is used by criminals. Estimates vary from 0.34 per cent to 23 per cent of overall cryptocurrency use based on different investigation methods.
For laundering, cryptocurrencies are used to obscure the trail of money that is made from criminal deals.
Crypto is used to buy drugs and other illegal goods, according to Europol. It said traditional money made from these deals can also be laundered by filtering them through cryptocurrency transactions. This process makes it easier to hide these transactions due to its decentralized nature.
Bitcoin is the most common cryptocurrency in use, taking up 44 per cent of the market, according to Europol. It said crypto was used for money laundering because most law enforcement and banking techniques couldn’t trace it.
But technology is improving and law enforcement can better investigate crypto laundering.
The use of Bitcoin extends to Canada as well.
The RCMP investigates crypto use in fraud and organized crime, and said the main feature of crypto is its decentralization and perceived anonymity.
“The anonymization and decentralized features of cryptocurrency can attract organized crime groups to use it as a means to transfer or monetize proceeds from illegal activities,” the RCMP said in an email interview.
However, cryptocurrencies can still be tracked through the blockchain and once it is turned into traditional currency. Blockchains are the electronic records applied to cryptocurrency deals that store the details of the transactions.
The RCMP warn Canadians they should use the same caution when involved in traditional finance with cryptocurrency to avoid potentially dealing with criminals.
“If you do not feel comfortable getting involved in a financial venture with either traditional or virtual currency, follow your instincts,” the RCMP said.
The United States Justice Department recently appointed Eun Young Choi as director of the newly created National Cryptocurrency Enforcement Team. The NCET was created in 2021 to investigate cryptocurrency crimes.
They say it’s is an effort to keep pace with the technological advances used by criminals, whether organized or not.
The press release from the Justice Department lists increasing use of cryptocurrency to “fuel cyberattacks and ransomware and extortion schemes; traffic in narcotics, hacking tools and illicit contraband online; commit thefts and scams; and launder the proceeds of their crimes.”
Cryptocurrency tracing company Chainalysis said the increase in cryptocrime is just one part of an overall increase in the use of cryptocurrency everywhere.
Its report notes while fraud and scams are still the most common crypto crime, money laundering is quickly becoming more prominent.
Both Europol and the INCB report that despite this increase, crypto still only makes up a small portion of criminal transactions. Traditional payment methods are still more common in criminal enterprises.
The RCMP says crypto is just one tool of many used by organized crime.
They say that while specialized tools are needed to track it, the process for investigating and prosecuting them is the same as traditional methods. Investigations into cryptocrime will often involve investigating traditional methods such as electronic banking and cash transfers.
“The digital currency is a tool, and investigations will focus on the offense being committed and then use the movement of the currency to support the charge and to lead to further investigation under Canada’s proceeds of crime/money laundering legislation,” the RCMP said.