False Narrative Bitcoin’s Role In Illegal Activity

Senate Finance Committee

Speaking at a Senate Finance Committee hearing today, Janet Yellen, President-elect Joe Biden’s choice for Treasury Secretary, noted that cryptocurrencies are a “particular concern” in criminal activity and financing of terrorism.

Yellen continued, “I think a lot (cryptocurrencies) are used, at least in a transaction sense, mainly for illegal financing. And I think we really need to explore ways in which we can reduce their usage, and make sure anti-money laundering (sic) doesn’t happen through those channels. ”

This is not the first time the cryptocurrency industry has heard this misconception and made a collective eye roll. Yellen may think that cryptocurrencies are used “primarily for illegal financing” but the data shows otherwise.

False Narrative

The majority of cryptocurrency is not used for criminal activity. According to an excerpt from the 2021 Chainalysis report, in 2019, criminal activity represented 2.1% of all cryptocurrency transaction volume (transfers worth approximately $ 21.4 billion). In 2020, the criminal share of all cryptocurrency activity fell to just 0.34% ($ 10.0 billion in transaction volume).

According to the United Nations, it is estimated that between 2% and 5% of global Gross Domestic Product ($ 1.6 to $ 4 trillion) annually is associated with money laundering and illegal activity. This means that criminal activity using cryptocurrency transactions is much smaller than fiat currency and its usage decreases year on year.

Jake Chervinsky, Counsel General, Compound Labs told me “It is disappointing to hear Dr. Yellen reiterates the erroneous view that crypto is used primarily for illegal activities. Her statement is clearly false. . Having said that, it is important to remember that crypto is a relatively small issue compared to everything else for which the Treasury Department is responsible, so it seems that it has not yet spent time considering it in depth. “

Privacy Clips

Some regulators may still point to Zcash and other “anonymous” privacy coins as a source of money laundering concern. Privacy coins often use a zero information protocol to shield customer information from another party in a transaction. For example, Zcash operates in an ‘opt-in’ privacy feature where users can decide whether fund information is transparent or shaded.

Last year, Rand Corporation, a not-for-profit research organization that helps improve policy and decision-making through research and analysis, conducted a use-case study for cryptocurrency and privacy coins. The report noted that despite the “perceived attraction of cryptocurrencies for the purpose of money laundering. . . an estimated 99 percent of cryptocurrency transactions are performed through central exchanges, which may be subject to AML / CFT regulation similar to banks or traditional exchanges. ”

The report concluded “Zcash is a cryptocurrency that uses no information proofs to provide better privacy to its users, however, there is little evidence that malicious actors are taking advantage of this.” The report highlighted Bitcoin as more of a concern than privacy coins, simply stating that criminals choose to “go where the money is.”

Physical Cash and Traditional Payment Methods

But if we really want to focus on where the money is, we should look at a government-backed physical fiat. According to a 2020 report by SWIFT (Global Interbank Financial Telecommunications Association), “laundering through cryptocurrencies remains relatively small compared to the volume of money launched by traditional means,” the report states.

Last week FinCEN announced a $ 390,000,000 Enforcement Action against Capital One

MEMORY
for engaging in willful and negligent violations of the Bank Secrecy Act (BSA) and its implementing regulations.

Capital One admitted that it failed to implement and maintain an effective Anti-Money Laundering (AML) program to protect against money laundering. Capital One also admitted that it deliberately failed to file thousands of suspicious activity reports (SARs), and negligently failed to file thousands of Cash Transaction Reports (CTRs), in connection with a particular business unit known as Check Cashing Group. The crimes occurred at least 2008 through 2014, and caused millions of dollars in suspicious transactions to go unreported in a timely and accurate manner, including profits related to organized crime, tax evasion, fraud, and other financial crimes and launched through the bank to the US financial System.

“The failures outlined in this enforcement action are poignant,” FinCEN Director Kenneth Blanco said in a statement. “Capital One deliberately ignored its legal obligations in a high-risk business unit.”

The Treasury is tasked with spreading rules that are effective in combating money laundering and terrorist finance. Saying that cryptocurrency is a “particular concern” does not look at the bigger picture.

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