The Future of Crypto-Money Laundering Regulation

It has been over 9 years since the creation of Bitcoin and in that time cryptocurrencies have generated significant interest resulting in extensive global investment.

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It is generally acknowledged that cryptocurrencies and distributed ledger technology (DLT), the technology behind them, will play a positive role in financial markets and will assist with combating money laundering and terrorist funding. However there is no doubt that they are currently exploited to commit criminal offences including tax evasion, terrorism and money laundering.

Global Discussions

This has prompted high level discussions worldwide about the implementation of regulations and controls designed to curtail such risks. The value of Bitcoin plummeted recently, which may have been as a result of countries such as Russia, Taiwan and China announcing their intention to introduce controls to regulate the use of cryptocurrencies. Though, as yet, there is no agreed consensus on how this can be best achieved.

This month Australia implemented their first set of controls intended to regulate cryptocurrencies. Cryptocurrency exchanges in Australia must now adopt and maintain anti-money laundering/counter-terrorist finance programs to identify, mitigate and manage such risks. They must also identify and verify the identities of their customers, report suspicious behaviour and report transactions involving currency of A$10,000. They must also preserve records for seven years. Failure to do so could result in criminal prosecution.

But without international cooperation, regulations like those implemented in Australia are susceptible to misuse. It is possible for those wanting to avoid detection to purchase cryptocurrencies through the dark web or in an unregulated country.

The head of the International Monetary Fund, Christine Lagarde, recently called upon authorities around the globe to utilise DLT to bring cryptocurrencies under control, stating that failure to do so creates a serious risk of a “potentially major new vehicle for money laundering and the financing of terrorism”.

One of the major benefits of DLT is that it allows for transactions without the need for authentication from a central authority. This will no doubt speed up transactions and information sharing and will inevitably make transactions both easier and cheaper. 

Furthermore parties can see the life of the coin and trace precisely where it has been. Unfortunately this does not always equate to knowing who the beneficial owners are and who ultimately controls the wallet.

Regulation in the UK

It would no doubt be preferable to have international consensus on how best to regulate cryptocurrencies to ensure consistency and efficient information sharing. However, the Governor of the Bank of England, Mark Carney, recently warned that international action to combat cryptocurrency misuse is unlikely for now.

In the UK we are yet to see any specific regulation and there are on-going discussions in the European Union about their proposed rules on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing. Furthermore, on the 26 February 2018 the European Commission proposed that virtual currency exchanges and wallet providers should be subject to the Anti-Money Laundering controls with proposed amendments expected in the 5th and 6th Money Laundering Directives. In the UK, where we are yet to see any specific regulation, this will be an area that will require close scrutiny in a post-Brexit world.


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