EU Amends AML Laws for Cryptotrading as US Ponders: Expert Blog

Larry Fink, CEO of the world’s largest asset management company, BlackRock, told a panel at the Institute of International Finance:

“Bitcoin just shows you how much demand for money laundering there is in the world. It’s an index of money laundering.”

Fink’s sentiment about virtual currencies reflected that of an IRS Criminal Investigation division official who told reporters in 2013 – after concluding a multi-jurisdictional investigation and shuttering a $6 billion virtual currency exchange for money laundering:

“If Al Capone were alive today, this is how he would be hiding his money.”

Drugs and money laundering

Recently, the U.S. Drug Enforcement Administration (DEA) published a report that provides an overview of the US efforts to police the global illicit drug trade. The report claims that virtual currencies – Bitcoin, Zcash, Monero, and Ethereum – are increasingly being used in the digital underground to facilitate trade-based money laundering schemes for transnational criminal organizations (TCO).

Over the past 10 years, the drug landscape in the US has vastly changed, with the opioid threat reaching epidemic levels in a significant portion of the country. Drug poisoning is a the leading cause of deaths in the US, with approximately 170 people dying from it every day. The opioid epidemic was declared a national emergency by President Trump last August, when Bitcoin was trading at $4,000.

Mexican TCOs and El Chapo

According to DEA’s report, the Mexican TCOs are the greatest criminal drug threat to the US. In the beginning of this year, when Bitcoin was trading at $1,000, the Sinaloa Cartel kingpin Joaquin Archivaldo Guzman Loera (El Chapo) was extradited by Mexico to the US. The extradition followed Mexico’s recapturing of the fugitive drug lord following his brazen escape from a maximum-security Mexican prison via an elaborate mile-long tunnel that connected to his prison cell.

In the US, El Chapo is facing a long list of criminal charges, including drug trafficking and money laundering, for running one of the most powerful and sophisticated transnational drug trafficking organizations in this world.

DEA’s report ties the extreme success of the Mexican TCOs to multiple factors, such as:

  1. By controlling lucrative southwestern drug smuggling corridors, Mexican TCOs export and transport significant quantities of illegal drugs into the US. El Chapo, in an interview with Rolling Stone magazine, boasted that he could “supply more heroin, methamphetamine, cocaine and marijuana than anybody else in the world.” He proudly took credit for overseeing up to half of the illegal drugs coming into the US from Mexico.
  2. To accomplish this, El Chapo said he had “a fleet of submarines, airplanes, trucks and boats.” Last year, Mexican law enforcement officials confiscated the Sinaloa Cartel’s 599 aircrafts—a fleet larger than Aero Mexico’s. Some of these airplanes were outfitted with the latest intelligence, surveillance and reconnaissance (ISR) technologies to go undetected by the US border patrol.
  3. After selling the illegal drugs in the US – which brought in $64 billion each year – the Mexican TCOs needed a way to get the drug money back to Mexico. It became increasingly difficult for Mexican TCOs to deposit their illicit cash proceeds directly into US banks and other financial institutions once the worlds largest banks – HSBC, Wachovia and Citigroup – were hit with billions of dollars in penalties for laundering Mexican cartel money. Mexican TCOs were forced to resort to more complex multi-jurisdictional trade-based money laundering (TBML) schemes that included using cryptocurrencies.

Money laundering using cryptocurrencies

The DEA report pointed out that China has become an important hub for money laundering schemes. TCOs purchase large shipments of “made in China” goods using Bitcoin. These “made in China” goods are then shipped to businessmen in Mexico and South America who reimburse the TCOs in local currency. Bitcoin payments are widely popular in China because it can be used to anonymously transfer value overseas, circumventing China’s capital controls…

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