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Bitcoin, crypto-coins, and global anti-money laundering governance



Crypto-coins (CCs) like Bitcoin are digitally encrypted tokens traded in peer-to-peer networks whose money laundering potential has attracted the attention of regulators, firms and the wider public worldwide. This article assesses the effectiveness of the global anti-money laundering regime in balancing both the challenges and opportunities presented by these novel ‘altcoins’. Two main arguments are advanced. First, the implications that crypto-coins presently pose for global anti-money laundering efforts stem less from the threats of their illicit uses as digital currencies and more from the opportunities presented by their underlying blockchain technologies. Second, despite several shortcomings, the risk-based approach pursued by the Financial Action Task Force (FATF) strikes an effective balance between the existing threats and opportunities that crypto-coins currently present. Rather than a conclusive evaluation however this article stresses the need for continual monitoring and investigation of the wider ethical implications raised by CCs for global efforts to combat money laundering in an era of rapid technological change.
Malcolm Campbell-Verduyn1
Balsillie School of International Affairs
Crypto-coins (CCs) like Bitcoin are digitally encrypted tokens traded in peer-to-peer networks whose money
laundering potential has attracted the attention of regulators, firms and the wider public worldwide. This article
assesses the effectiveness of the global anti-money laundering regime in balancing both the challenges and
opportunities presented by these novel ‘altcoins’. Two main arguments are advanced. First, the implications that
crypto-coins presently pose for global anti-money laundering efforts stem less from the threats of their illicit uses as
digital currencies and more from the opportunities presented by their underlying blockchain technologies. Second,
despite several shortcomings, the risk-based approach pursued by the Financial Action Task Force (FATF) strikes an
effective balance between the existing threats and opportunities that crypto-coins currently present. Rather than a
conclusive evaluation this article stresses the need for continual monitoring and investigation of the wider ethical
implications raised by CCs for global efforts to combat money laundering in an era of rapid technological change.
Bitcoin; crypto-coins; Financial Action Task Force; global governance; money laundering
This is a peer-reviewed pre-publication version of an article that appears in Crime, Law and
Social Change. If you wish to cite it please consult the final published version for the correct
pagination. Citations should appear as: Campbell-Verduyn, Malcolm. 2017. “Bitcoin, Crypto-
Coins, and Global Anti-Money Laundering Governance”. Crime, Law and Social Change
1 Earlier drafts of this paper were greatly improved by the careful criticisms and helpful suggestions of Eric
Helleiner, Marcel Goguen, Mark Nance, participants in the FATF @ 25 workshop at the Federal Reserve Bank of
Atlanta, researchers in the University of Toronto’s Internet Research Network, and two anonymous referees of
Crime, Law, and Social Change. The usual disclaimers apply.
What implications do ‘crypto-coins’ like Bitcoin pose for global anti-money laundering efforts?
How effective is the global anti-money laundering regime in balancing the challenges and
opportunities presented by the emergence of these novel digital tokens? Discussions of what
Bitcoin and its competitors are and what they do tend to be characterised by fundamental
misunderstandings and highly divergent viewpoints. This article advances a nuanced two-fold
argument that nuances and navigates between highly polarised extremes. First, the implications
crypto-coins presently pose for global anti-money laundering stem less from the threats of their
illicit uses as virtual currencies and more from the opportunities presented by their underlying
blockchain technologies. Second, despite several shortcomings, the risk-based approach
formulated by the leading global-level organisation involved in coordinating anti-money
laundering efforts, the Financial Action Task Force (FATF), provides an effective balance
between the existing threats and opportunities that crypto-coins currently present. The fostering
of looser, decentralised governance networks is regarded as more effective than centralised
forms of coercion in an era of rapid and unpredictable technological change.
These arguments are elaborated over four sections. A first section outlines the challenges
that crypto-coins presently pose for the global anti-money laundering regime by advancing an
understanding of these ‘altcoins’ as novel technologies rather than as currencies. The limits of
industry and government efforts to address these potential challenges are then laid out in a
second section that illustrates the gap in global governance that the FATF has sought to address.
A third section assesses the global coordination provided by the FATF in balancing both the
potential risks as well as the benefits presented by this set novel set of technologies for anti-
money laundering efforts. A concluding section summarises and highlights directions for future
research. Rather than a conclusive evaluation the article stresses the need for continual
monitoring and investigation of the wider ethical implications raised by CCs for global efforts to
combat money laundering.
The Challenges of Crypto-Coins to Global Anti-Money Laundering Governance
Crypto-coins (CCs) are digitally encrypted sequences of numbers. Their central novelty lies in
enabling digital transactions to be undertaken securely and with varying levels of anonymity.
These transactions are verified through decentralized peer-to-peer networks and then broadcast
on public ledgers that encode the transaction histories of each individual CC. Bitcoin is by far the
leading ‘altcoin’, having benefited from first-mover advantages with its establishment in 2009.
The technical design for Bitcoin appeared in a 2008 white paper published by an unidentified
person or group of persons under the alias Satoshi Nakamoto [1].2 The open source nature of this
design has given rise to hundreds of competing CCs as well as experimentation with applications
beyond CCs. However, scholarly, regulatory and popular debates tend to focus on whether or not
CCs serve as forms of money in the so-called “Internet of Money” [2, see also, 3, 4, 5]. This
section argues that these ‘altcoins’ are less conventional forms of money than novel technologies.
The challenges that these decentralised and quasi-anonymous technologies potentially pose to
the global anti-money laundering regime are then considered.
2 CCs are often referred to as Bitcoins in a generic manner similar to tissues being called Kleenex.
The novelty of CCs
Debates on money laundering tend to assume economistic understandings of money as defined
by three key properties: a medium of exchange, store of value, and unit of account. CCs are not
widely utilised as media of exchange. The limited acceptability of CC beyond some tech-savvy
communities and markets3 stems from many factors, not least perceived difficulties with their
‘usability’, as well as the wider ‘digital gaps’ that render ‘altcoins’ beyond the reach of those less
familiar or less able to transact with novel digital technologies. Less than six per cent of
Americans, for instance, considered themselves to be “very familiar” with CCs in a 2015 survey
by PwC ([7] p. 7). Another 2015 survey by this consulting firm found that less than ten per cent
of leading money managers had any familiarity at all with CCs [8].
Understanding CCs as conventional forms of money is rendered equally difficult by their
unstable values. CCs are often praised as ‘digital gold’ due to their inherent yet finite quantity.
For instance, a total of some 21 million bitcoins can be produced, of which 14 million already
exist.4 This limited supply renders the leading CC highly sensitive to changes in demand.5 Easily
bid up and down by speculators the unstable price of Bitcoin and other CCs render their values
extremely volatile. The dollar price of Bitcoin has garnered widespread attention as it briefly
surpassed $1,000 in 2013 only to fall back down to the low hundreds where it remained until
once again rising past $1,000 following the inauguration of Donald Trump as American
president [9]. Critics have stressed this volatility in arguing that a token “prone to collapsing or
quadrupling in price is useless as a practical currency[10]. Difficulties in safely storing CCs in
digital wallets, banks, and exchanges that have been continually targeted by hackers further
undermined the store of value function of CCs. Such hacks have ranged in size, from the 896
bitcoin theft from Alberta-based Flexcoin to the record loss of 850,000 bitcoin from Tokyo-
based Mt. Gox in 2014 (11; 12; 13).6
Finally, CCs infrequently serve as standard units of account. The ability of CCs to keep
“track of promises of future benefits in exchange for past transfers of resources” ([14], p. 25) has
been recognised by economists, central bankers and financial regulators alike as theoretically
serving the function of virtual unit of account [15; 16].7 In actual practice however CC users
largely continue accounting for the value of altcoins in relation to official state-backed
currencies, primarily the American dollar [19]. The instability of exchange values and limited
acceptability of CCs further undermines their uses as units of account. As the European Central
Bank puts it, given “the low level of acceptance and the high volatility of their exchange rates
and thus purchasing power make them unsuitable as a unit of account […] Bitcoin cannot be
regarded as full forms of money at the moment” [20].
3 The estimated annual transaction volume in Bitcoin alone grew from $2 million to over $100 million between 2012
and 2015 [6]. For an interactive map of businesses accepting Bitcoin see
4 Units of CCs are conventionally put in lowercase. Estimates vary regarding when precisely production of Bitcoin
will peak, with some indicating the year 2040 and others a century later.
5 Bitcoin competitors such as Blackcoin and Peercoin boast less restrictive aggregate limits through technical
mechanisms that control increases in supply for instance to one percent annually.
6 Section three below elaborates on the story of Mt. Gox.
7 As economists William Luther and Josiah Olson succinctly put it, “Bitcoin is Memory” [17]. Computer scientists
have noted the possibility however that CCs with a famous transaction history” might be more valuable than more
mundane CCs, thwarting their ability to serve as standardized unit of account [18].
. Why should global anti-money laundering efforts be concerned with CCs if “in practice
few people actually use, or perceive, Bitcoin as money in a traditional sense” ([21], p. 3)?
Recent calls to expand studies of money ([22], p. 19) and heterodox understandings of money
[23; 24] point to at least two reasons why CCs remain relevant to global anti-money laundering
efforts. First, global anti-money laundering governance is concerned with illicit transactions and
financial flows whether or not they meet theoretical standards of money. These global efforts
seek to combat the ‘mainstreaming’ of proceeds from illicit activities into the legitimate financial
system by preventing the linking of financial “upperworlds” and “underworlds” [23]."A second
reason why CCs remain relevant to global anti-money laundering governance is due to the novel
manners in which altcoins enable the nearly real-time undertaking, verification and publication
of transactions across political boundaries. As the following subsections explore in turn, the
decentralised and quasi-anonymous features of CCs potentially threaten longstanding global anti-
money laundering efforts.
Decentralised financial flows
Money laundering across national borders traditionally implicated large, multinational
banks specialised in cross-border financial transactions. As such, global-level anti-money
laundering (AML) efforts have traditionally “deputized” [24] multinational banks as centralised
“choke points” [25] to report transactions suspected of laundering illicit funds. CC transactions,
however, are undertaken between decentralised networks of users spread worldwide. Rather than
centralised institutions like banks, CCs rely on these decentralised networks of users to verify the
validity of transactions and avoid the problem of double spending.8 In shifting from reliance on
centralised financial institutions, CCs “neatly sidestep the plethora of anti-money laundering
regulations developed over the past 25 years” ([26], p. 3). Without centralised institutions ‘in
charge’ of CCs no one set of institutions may be relied upon to impose AML requirements.
There exist several ‘nodes’ in the CC ecosystem that can be targeted in global AML efforts.
Before elaborating upon these, however, a second related threat to global AML governance is
Quasi-anonymous financial flows
Applications of digital technologies have long sought to navigate between transparency and
anonymity ([27], p. 57-59). Attempts to balance these play out in novel manners with CCs. In
theory, CC user addresses cannot be linked to real-world individual identities due to the complex
mathematical scrambling employed in the public-key cryptography underlying CCs.
Nevertheless, records of individual transactions are broadcast on so-called ‘distributed public
ledgers’. With Bitcoin, for example, the record of all transactions undertaken approximately
every ten minutes is bundled together in ‘blocks’. Linked together, these blocks form
blockchains, as ‘distributed public ledger’ are more commonly known. Contrary to
sensationalistic media reports, CCs like Bitcoin are thus best characterised as quasi-anonymous
technologies. Their novel attempts to balance of user anonymity and transactional transparency
8 The problem of insuring that money that is transferred over long distances and borders is not simultaneously
retained so that the same unit cannot be used by an individual to purchase goods more than once.
are paradoxically both attractions, as well as sources of risk in an age of “surveillance
capitalism” [28].
The quasi-anonymity of CCs challenges traditional global AML efforts centred on the
identification of individuals involved in money laundering. Such efforts are complicated by at
least two factors. First, quasi-anonymity frustrates the requirement at the heart of global AML
governance for financial firms such as banks to ‘Know Your Customer’ (KYC). Financial
professionals tasked with recognising “evasive or defensive answers to questions” are confronted
with the difficult task of identifying whom to direct their questions to ([26], p. 6). CCs thereby
reverse the traditional problem confronting AML efforts, from “parties known-transactions
unknown” to “transactions known-parties unknown” [30]. In other words, the “very difficult
challenge” posed by CCs, as Deloitte principal Fred Curry puts it, is that professionals “can’t
monitor transactions if [they] don’t know who the parties are” (cited in [29]). The second and
related problem potentially posed by the quasi-anonymity of CCs is obfuscating what constitutes
the ‘normal’ rather than ‘atypical’ use of these ‘altcoins’. This is the issue, as legal scholar
Robert Stokes has put it, of knowing exactly “what a suspicious BTC [Bitcoin] transfer would
‘look’ like” ([26], p. 5). How, in other words, can financial professionals identify suspicious uses
of CCs when a baseline for their typical use is neither widely known nor understood?
Together, the quasi-anonymity and decentralised nature of CCs pose important
theoretical challenges to AML efforts. Table 1 below provides a more in-depth overview of the
risks of money laundering posed by CCs at the three traditional ‘stages’ of money laundering. As
these risks are more thoroughly detailed elsewhere, the following section proceeds to scrutinise
varying individual and collective efforts undertaken to confront these possible challenges.
Table 1: Money laundering risks posed by CCs
Potential exploitation
of vulnerabilities
at each stage
General Risk Factors
CCs can be used by
criminals and
particularly if
money mules
involved that
cannot be flagged
Proceeds of crime can
be transferred to
another CC in another
occur in real-time,
allowing little
time to stop them
if suspected of
money laundering
Source: Adapted from [31]
Dispersed Global AML Efforts and Governance Gaps
In originally accepting only Bitcoin for exchange of illicit goods and services, the infamous
online marketplace the Silk Road raised contributed to greater public awareness of the potential
for CCs to be implicated CCs in money laundering.9 More widely, studies of search engine data
have correlated interest in the leading CCs with illegal activities such as money laundering [33].
While CCs theoretically enable “money launderers to move illicit funds faster, cheaper, and
more discretely than ever before” ([34], p. 447], little evidence supports claims that such illicit
activities are in fact being undertaken with CCs. Altcoin promoters have long asserted that the
association of CCs with money laundering is “inflated” (Eddy Travia cited in [35]). Official
studies have supported such claims. For instance, the 2015 British National Risk Assessment
established that since “[t]here are a limited number of case studies upon which any solid
conclusions could be drawn that digital currencies are used for money laundering… [t]he money
laundering risk associated with digital currencies is low” [36].10 As some legal scholars have
9 The original Silk Road was shut down by the US Federal Bureau of Investigation (FBI) in 2013. The alleged
creator of the website, the American Ross Ulbricht, was sentenced to life in prison without parole for money
laundering amongst other charges. Silk Road 2.0 was then closed down in 2014 following an international operation
by police agencies from 17 different countries. Silk Road 3.0 once again opened in mid-2016 revealing the longer-
term limit to international police crackdowns [32].
10 Similarly, the worry that CCs may be used for terrorist financing remains more potential than proven [37; 38; 39;
40]. Contrary to initial reports, the perpetrators of the November 2015 Paris terrorist attacks did not rely on CCs [41,
suggested CC “laundering opportunities may well be more perceived than real” ([26], p. 5
emphasis added; see also [43], p. 332).!
Nevertheless, the challenges that CCs theoretically pose to global AML efforts have been
routinely touted by financial regulators and law enforcement. The Bank of International
Settlements (BIS) ([44] emphasis added) has warned that, due to their “pseudonymity” and
global reach, CCs “are potentially vulnerable to illicit use”. Similarly, the International Monetary
Fund (IMF) has stressed how CCs “can be used to conceal or disguise the illicit origin or
sanctioned destination of funds, thus facilitating the money laundering [sic][45], p. 27). For the
SWIFT Institute, the advisory body to the Society for Worldwide Interbank Financial
Telecommunication, CCs are a particular “target of those engaged in drug trafficking and money
laundering” ([46], p. 7). Meanwhile, following warnings from the Federal Bureau of
Investigation and its raid of the Silk Road [47], the American House Committee on
Appropriations argued in 2014 that “Bitcoins and other forms of peer-to-peer digital currency are
a potential means for criminal, terrorist, or other illegal organizations and individuals to illegally
launder and transfer money” [48]. The purportedly growing use of Bitcoin and other CCs in the
exchange of illicit goods and services in online marketplaces,11 have induced further warnings
from intergovernmental police organisations that CCs “are being used as an instrument to
facilitate crime, particularly in regard to the laundering of illicit profits” [50].
The yet to be more widely proven implication of CCs in money laundering has
nevertheless led institution from the financial ‘upperworld’ to refrain from the ‘altcoin’
ecosystem. Leading insurers have shied away from underwriting insurance on CCs despite the
clear need for such coverage stemming from continual breaches of both altcoin ‘banks’ and
exchanges. In 2014 the British bank HSBC abandoned its CC hedge fund in order to avoid
potential implication in further money laundering scandals [51]. The BIS has noted how banks
have “tended not to engage directly with digital currency intermediaries” and “sought to avoid
interaction as a result of perceptions of risk and uncertainty over legal or compliance issues (such
as AML/CFT)” ([44], p. 7). Large, multinational banks have sought to avoid further costs
involved with AML compliance [52]. The managing director of American bank Morgan Stanley
argued in a 2016 that until the “key question of who will be in charge” is settled, banks would
not take CCs “seriously, principally because of anti-money laundering and ‘know your customer’
(KYC) rules” [53].
In seeking to mitigate potential money laundering risks, as well as to pre-empt national
initiatives,12 firms and industry associations in the CC ecosystem have elaborated their own
voluntary AML standards. This section illustrates how the limits of both industry and national
initiatives have led to a global governance gap that organisations such as the FATF are
positioned to address.
11 Europol ([49], p. 46) notes, but offers no supporting evidence of the claim that Bitcoin features “heavily in many
EU law enforcement investigations, accounting over 40% of all identified criminal-to-criminal payments”.
12 The hackers, technologists, and “wildcat bankers” [54] forming the CC community are renown for wariness of
centralised authority. They tend to promote a world of small government and diminished state sovereignty.
The limits of industry self-regulation
Firms in the ‘altcoin’ ecosystem have developed varying AML-compliant CC services.
BitInstant, a now defunct leading New York City-based issuer of CC debit cards, promoted
voluntary registration and compliance with AML laws. Exchanges of CCs into state-backed
money, such as Hong Kong-based BitFinex, require customers to undertake more
“comprehensive and thorough KYC and AML compliance implementation” that involves the
provision of certified identification documents and valid proof of address [55]. BTC China [56],
Hong Kong-based Gatecoin [57], as well as the British exchanges Bitstamp [58] and its rival
CEX.IO [59] all enforce minimum AML standards by requiring customers to provide copies of
their passports in verifying their identities. These firm-level AML efforts however vary
considerably, with CC exchanges like HitBTC requiring identification only for account holders
that they deem to be “suspicious” [60].
Variance between the AML efforts of individual firms has led to efforts to develop a set
of common guidelines. In attempting to develop “common risk management and compliance
standards” ([61], p. 834), Delaware-based body called the Digital Asset Transfer Authority
(DATA) released a draft set of “global AML guidelines” for comment in 2015. Emphasising the
need to balance AML efforts with “fundamental rights and values, including civil liberties,
financial privacy and inclusion, transparency and accountability” its draft guidelines urged CC
firms to each implement “a basic AML Compliance Program whether or not required by law”
([62 p. 2, emphasis in original). AML compliance was specified by the DATA as involving
written internal procedures and annual employee training on risk-based due diligence
assessments that are overseen by independent Chief Compliance Officers. These draft guidelines
suggested that firms collect customer names and addresses as well as “consider implementing
more in- depth customer identification and verification procedures – especially for customers and
products identified in the risk assessment as high risk” ([62], p. 4). Such “in-depth” procedures
include “everything from simply ‘googling’ the person or company involved or checking the
appropriate government agency for corporate registration, to requesting banking and other
references, to obtaining credit or business reports, and even obtaining a criminal background
check” ([62], p. 5). Finally, the DATA guidelines urge firms to monitor the potential for AML
through the “entire cycle of a relationship”.
The various industry efforts to develop AML standards have led to optimistic predictions
that all major ‘altcoin’ operators would comply with some kind of AML regulations over time
(e.g. [63]). However, re-occurring scandals and the warnings of police and financial bodies cited
above have “drawn serious attention” ([64], p. 157) by national regulators and instigated a
perceived need to impose more consistent AML standards throughout the CC ecosystem [45].
National AML efforts: Racing to the top and bottom
National regulators have sought to apply existing as well as new AML measures in the CC
ecosystem. How existing laws and regulations of the country – the US - that has been most
aggressive in prosecuting money laundering [65] and at the centre of global AML efforts [66]13
13 Although a longstanding practice, money laundering only formally became criminalised in the 1980s American
‘war on drugs’. With the more recent American-led ‘war on terror’, money laundering is also frequently conflated
apply to CCs has been extensively analysed by legal scholars [e.g. 68, 69, 70, 71, 72, 73, 74, 75]
as well as drawn upon in several legal cases. For instance, the American Department of Justice
(DoJ) invoked the Money Laundering Control Act of 1986 in prosecuting Bitinstant CEO
Charlie Shrem, who pled guilty to aiding and abetting unlicensed money transmission in 2014.
Shrem contended that his two-year jail sentence “terrified” potential money launderers from
employing CCs [76]. In 2015, the US Financial Crimes Enforcement Network (FinCEN) of the
US Treasury Department invoked the 1970 Bank Secrecy Act in its first ever-civil enforcement
action against a CC exchange. San Francisco-based Ripple Labs was fined $700,000 for failing
to implement effective AML programmes in the two years following the guidance FinCEN
issued in 2013 [77]. A similar logic underpinned the DoJ case against the individuals operating
the CC exchange who allegedly used a credit union to launder proceeds from ransom
attacks against large institutions from the financial ‘upperworld’, such as JP Morgan Chase, as
well as the media firm Dow Jones [78, 79, 80].
Beyond the US, various formal efforts have been undertaken to mitigate the use of CCs.
‘Altcoins’ are banned in several countries, including Bangladesh, Bolivia and Ecuador, while
their legal status has remained questionable in others, such as Russia and Thailand [81]. In 2013
and 2014 the People’s Bank of China and State Bank of Vietnam, respectively, issued laws
banning financial services firms and their employees from handling and conducting any
transactions in CCs. The Central Bank of Iceland argued in a 2014 decision that the purchase of
CCs is in violation of the country’s Foreign Exchange Act. The central bank of Indonesia also
declared that “Bitcoin and other virtual currency are not currency or legal payment” [82]. While
the European Central Bank has more generally warned that regional authorities “take care not to
appear to promote the use of privately established digital currencies” ([83, p. 2]), the European
Banking Authority has recommended that regional authorities “discourage” credit institutions
from dealing in CCs [84].14 European countries such as The Netherlands have brought forward
multiple legal cases against individuals suspected of money laundering through CCs [86].
Although supported by some analysts [40], these bans and other such top-down coercive
efforts to mitigate money laundering through CCs have faced criticism. Legal scholar Kavid
Singh [75] has for example pointed out that “heavy-handed” approaches fail to prevent the use of
CCs for money laundering and other “clandestine transactions” as well as “eradicate” more
legitimate uses of ‘alt-coins’, such as facilitating migrant remittances and payments to
whistleblowers (e.g. [86] p. 15-18; for an overview see 21]). Yet ‘heavy-handed’ is a
categorisation invoked quite loosely in otherwise meticulous legal scholarship. Singh implicitly
refers to tactics that might undermine the benefits of CCs, such as requirements for the key
centralised “focal points” in the CC ecosystem, such as exchanges, to transact with other
operators and CC users that have met AML requirements [87]. As identified in Table 1 above,
the central problem with targeting exchanges and other “easily identifiable institutions with
with terrorist financing [25]. Yet since these activities pose alternative problems for law enforcement and their
entanglement hinders the fuller understanding of either form of financial crime [26] this analysis largely
concentrates on the implications of CCs present to global-level efforts to combat the former.
14 The money laundering potential of CCs attracted further formal attention in the European Union following the
November 2015 Paris terrorist attacks as the European Commission ([85], p. 39) proposed to amend the Fourth Anti-
Money Laundering Directive to bring CC exchanges under existing AML laws and create “a central database
registering [CC] users’ identities”.
readily detectable headquarters” ([75], p. 58) is that such CC operators can simply re-locate in
jurisdictions where such requirements are most lax or that may be “non-cooperative” in
enforcing AML efforts ([88], p. 4). For example, New York City witnessed an “exodus” [89] of
its previously thriving CC industry after the state Department of Financial Services sought to
impose a “very innovation unfriendly” Bitlicense registrations on CC operators in 2015 [90]. In
order to obtain this license firms must undertake “initial and annual risk assessments, ten-year
records of all transactions, suspicious activity reports, a customer identification program, checks
and compliance, annual internal or external audits, and no structuring to evade reporting, or
obfuscating identity” ([73], p. 601). Just as water flows towards lower points of gravity [91], CC
operators may be induced by such high standards to undertake regulatory arbitrage in shifting
their activities towards less ‘strict’ jurisdictions and murkier areas of the ‘shadow financial
system’ where AML regulations are much ‘looser’ and the reach of AML efforts remain
‘weaker’ [92].15 As the BIS has stressed, “the decentralised nature of these digital currency
schemes means that it is difficult to impose such restrictions on transactions” ([44], p. 10).
Yet ‘races to the bottom’ are also often accompanied by ‘races to the top’. New York
State and other jurisdictions have attempted to distinguish themselves as legitimate centres for
CC activity. Singapore has since 2014 required virtual currency exchanges based in the city-state
to verify customer identities and report suspicious transactions to its Suspicious Transaction
Reporting Office [31, 93]. The English Channel island of Alderney has set up a cluster of AML-
compliant CC services in its attempt to become the leading international CC transaction centre
[94]. Competing for the title of “Bitcoin Isle” is the neighbouring Isle of Man, which amended its
main AML legislation to include CCs and is developing similar “pioneering regulation and
funding schemes” [95]. Such efforts to create legitimate AML-compliant jurisdictions, however,
do little to limit the potential for money laundering activities to thrive other jurisdictions.
National authorities have also sought to impose their AML requirements on CC
operations beyond their jurisdictions. In May 2013 the US Department of Homeland Security
issued a seizure warrant to the American-based firm undertaking transfers for the once dominant
Tokyo-based CC exchange Mt. Gox, which complied and received a money business service
license only months before filing for bankruptcy protection following a devastating hack [71].
Beyond this prominent case and scholarly suggestions to rely solely on the American laws and
regulations [74], however, extraterritorial applications of US laws only go so far in providing
legitimate global rather than unilateral AML standards for CCs. The unappealing choice for
national regulators to either blatantly submit to the jurisdiction of American power or to impose
bans to mitigate the use of CCs has instigated global level efforts.
A gap in global AML governance
The limits of both industry- and national-level governance have instigated calls for coordinated
global efforts to mitigate the potential uses of CCs for money laundering without curtailing their
more beneficial features. The BIS argues that “[g]iven the nature of digital currencies, which are
typically online and therefore not limited to national jurisdictions, a coordinated approach at a
global level may be important for regulation to be fully effective” ([37], p. 12). Technologists
15 Though it should be noted that some two dozen firms, including the prominent exchange Coinbase, have remained
in the state and applied for such a license.
Isaac Pflaum and Emmeline Hateley ([74], p. 1196) have also argued that “it is not possible to
regulate virtual currency effectively at the international level without significant assistance
between states that permit its usage”. Such global collective action problems are certainly not
new, having afflicted the governance of a range of emergent technologies in the past [96].
Several international organisations have been vying to provide standards coordinating
national AML laws and regulations relevant to CCs. The United Nations Office on Drugs and
Crime (UNODC) issued a detailed manual in 2014 for detecting and seizing CCs implicated in
money laundering and, with the Organization for Security and Cooperation in Europe (OSCE),
has been training officials to investigate money laundering through CCs [97]. In 2015 the
International Organisation of Securities Commissioners (IOSCO) established a “blockchain
taskforce” [98] while the Commonwealth convened a ten member Working Group on Virtual
Currencies in parallel efforts to coordinate AML approaches. Similarly, Interpol and Europol
have established a joint partnership coordinating police activities “against the abuse of virtual
currencies for criminal transactions and money laundering” [100]. The following section
scrutinises efforts by the intergovernmental organisation specifically designed to coordinate
AML efforts.
FATF to the Rescue?
The Paris-based Financial Action Task Force (FATF) is an intergovernmental organisation
officially comprised of thirty-five member-states and two regional organisations. Including its
associate and observer members, as well as members of FATF-style regional bodies some 170
countries are linked to the FATF, which is widely recognised to form the heart of the global
AML regime [66].16 The 40 recommendations developed following its 1989 founding along with
the further 9 recommendations promulgated in the aftermath of the 11 September 2001 attacks
are widely regarded as the key global standards advancing a common AML approach [31]. Since
their 2003 revision, these voluntary, non-binding recommendations have emphasised a ‘risk-
based approach’ prioritising preventative measures “commensurate with the risks identified”
([101], p. 11). In contrast to a more uniform ‘rules-based approach’, the ‘risk-based approach’
provides national regulators with considerable discretion in implementing measures to achieve
the common goal of reducing money laundering [102]. This flexible and decentralised approach,
combined with forums for mutual learning and evaluation is indicative of “networked” [103] and
“experimentalist” (104) forms of governance that have been more widely identified in
contemporary global governance.
The FATF recommendations and its risk-based approach have been applied to CCs.
Attention to the altcoin ecosystem by the task force began rather belatedly, a half-decade
following the establishment of Bitcoin. A 2013 report assessed Internet-based payment systems
in general terms [105]. A detailed and quite nuanced report the following year then
acknowledged both the legitimate potential of CCs ([106], pp. 8-9) as well as how the complex
and segmented infrastructures underpinning CCs involve entities spread across “jurisdictions that
do not have adequate AML/CFT controls”. A 2014 report also stressed how the existence of the
CC ecosystem “in a digital universe entirely outside the reach of any particular country” entailed
For a list of full members, associate members, and observers of the FATF see http://www.fatf-
that “responsibility for AML/CFT compliance and supervision/enforcement may be unclear”
([106], p. 8-9). Identifying this lack of governance clarity served as justification for involvement
by the FATF in the CC ecosystem. A set of specific guidance consistent with its purposely broad
40+9 recommendations was then released in 2015 with the dual purpose of helping market actors
identify and act on the money laundering threats posed by CCs, as well as of aiding national
authorities to develop standard legal and regulatory frameworks to support global AML efforts
In mitigating the money laundering potential of CCs the FATF guidance relies on the
longstanding twin pillars of its AML efforts identified by scholars ([109], p. 181). First, the
FATF suggests national authorities set up “coordination mechanisms” to proactively share
information in manners that promote deeper understanding of the risks of money laundering in
the CC ecosystem ([107], p. 8). Second, the risk-based approach suggests national authorities
target the specific ‘nodes’ most likely to be at the forefront of money laundering and whose
“activities intersect with the regulated fiat currency financial system” ([107], p. 6). Rather than
individual users or producers of CCs, the FATF suggests countries regulate the institutions at
highest risk of involvement in money laundering because they “send, receive, and store” CCs.
The 2015 FATF guidance specifies that exchanges should be targeted for enhanced monitoring.
Yet the FATF calls on exchanges themselves to “undertake customer due diligence when
establishing business relations or when carrying out (non-wire) occasional transactions using
reliable, independent source documents, data or information” ([107], p. 12). The forty-fourth
clause suggests that CC exchanges identity users using national identity numbers or Internet
Protocol addresses, as well as conduct online searches “for corroborating activity information
consistent with the customer’s transaction profile” ([107], p. 13).
What measures does the FATF then suggest regulatory authorities undertake in
responding to exchanges or other actors in breach of AML requirements? Its 2015 guidance calls
for such exchanges to be met with “enhanced due diligence measures” ([107], p. 8). These
measures include straightforward prohibition ([107], p. 9) as well as “a range of effective,
proportionate and dissuasive sanctions (criminal, civil or administrative)” ([107], p. 10). What on
first glance appears to form a rather ‘harsh’ approach becomes more nuanced by subsequent
suggestions that coercive measures “should take into account, among other things, the impact a
prohibition would have on the local and global level of ML/TF risks, including whether
prohibiting VC [virtual currency] payments activities could drive them underground, where they
will continue to operate without AML/CFT controls or oversight” ([107], p. 9). In other words,
the FATF urges national authorities to recognise how complete bans on CC might further
exasperate regulatory arbitrage and “cross-border” divergences in the governance of exchanges
operating as key nodes between the financial “upperworlds” and “underworlds” [23].
Evaluating the FATF guidance
The effectiveness of the FATF and its non-obligatory recommendations has long been subject of
scholarly debate [91, e.g. 110; 111; 112]. Several commentators have criticised the weak and
17 The FATF issued a second report in 2015 more specifically detailing the potential for CCs to be implicated in
terrorist financing [108]. The case of an American teenager who had pled guilty to promoting- but not undertaking-
efforts to fund the Islamic State through CCs was highlighted.
largely symbolic role of the FATF in appearing to be ‘doing something’ about money laundering
without restricting “the freedom of capital movements, in any way” [107, p. 104; e.g. 113; 114;
115]. Other scholars have stressed the successfulness of this intergovernmental organisation in
motivating a range of state and non-state actors worldwide to prioritise AML efforts without
resorting to coercive formal laws ([66], p. 86; [65], p. 47). Existing analyses therefore range from
a narrower emphasis on the success of efforts to standardise varying AML efforts to more
general success in preventing money laundering.18
The proceeding evaluation stresses a different understanding of effectiveness: the balance
achieved between mitigating the potential challenges without curtailing the actual opportunities
presented for AML efforts. This understanding of effectiveness is invoked for two reasons. First,
as the 2015 FATF guidance on CCs is only slowly being transposed into national and regional
regulations the narrower emphasis on the success of efforts to standardise varying AML efforts
is difficult to presently assess. Second, with little evidence currently implicating CCs in money
laundering it is important to also consider whether the potential benefits of blockchain
technology are being promoted.
Unsurprisingly, CC supporters have criticised FATF suggestions that existing AML
standards be extended to the ‘alt-coin’ ecosystem. Doing so, industry proponents have
maintained, would once again lead CC activities to flow to parts of illicit financial system that
remain effectively remain ‘off-limits’ to regulators. Industry bodies such as the Digital Finance
Institute have argued that the “regulate or shut down” [26] approach advocated by the FATF
would not only force parts of the CC ecosystem into the illicit ‘underworld’ but lead institutions
from the financial ‘upperworld’ to avoid engagement with CC operators due to longstanding
concerns with the costs of AML compliance (see more generally [113], p. 621, 628-9). In
avoiding engagement with CCs, financial institutions seek to ‘de-risk’ by forfeiting involvement
in activities where the costs of complying with AML regulations are regarded as outweighing
any potential gains.
Three more specific criticisms can be levied at the FATF’s risk-based approach. First, the
FATF perpetuates the heavy reliance of global AML governance on market actors ([102]; [117];
[118]; [113], p. 620). The 2015 guidance proposes that countries require financial and non-
financial firms to assess money laundering risks themselves when dealing with CCs. Indeed, the
very first clause advocates that market actors “refine technical processes used to reliably identify
and verify customers” ([107], p. 12). The FATF also calls on industry associations to “develop
policies and practices for members that allow them to identify specific transactions as coming
from a member that has applied appropriate [customer due diligence] CDD and is conducting
appropriate transaction monitoring” ([107], p. 14). This emphasis on market initiatives (e.g.
[107], p. 8) overlooks problems involved with relying on industry-sponsored data, as well as the
for regulators to be material and intellectual ‘capture’ by industry interests ([119]; [120] p. 152-
3). Top-down attempts at fostering industry cooperation have spurned push-back from the
decentralised CC community, including denunciations by leading individuals in the Blockchain
Alliance, an organisation consisting of 16 CC servicers and seven American regulatory agencies
[121]. The FATF has sought to justify its emphasis on market solutions by arguing that the
18 Others yet critique the inherent difficulty in measuring effectiveness of AML policies ([116], p. 641).
inability to “target one central location or entity for investigative purposes… undermines
countries’ ability to employ effective, dissuasive sanctions” and “presents a significant challenge
to law enforcement’s ability to trace illicit proceeds that are laundered” ([107], p. 11). Despite its
recognition of such difficulties, the FATF suggests national authorities review these challenges
in order “to identify potential gaps and take action” ([107], p. 11) like “licensing and
registration” as well as nudging exchanges to adopt “customer identification/verification and
recordkeeping requirements”. In short, this risk-based approach tends to overlook the risks
involved with a reliance on industry solutions.
Second, and relatedly, the FATF guidance tends to rely on magic-bullet “technology-
based solutions” ([107], p. 14). The 2015 guidance suggests that, if left alone by regulators,
market actors might develop “application programming interfaces (APIs) that provide customer
identification information” or third-party digital identity systems that would themselves need to
be regulated ([107], p. 14). The FATF suggestion to combat the enhanced money laundering
potential created by a new set of technologies with further technical innovations encourages what
Europol ([49], p. 69) and others have derided as a technological “arms race” between CC users
and regulators. Besides criticism that the technology to undertake such efforts is not yet in
existence [29], the development of “identity gatekeepers” or “[s]ome kind of central authority
[…] to undertake identification processes” is fundamentally at odds with the preference for
decentralisation and distrust of centralisation in the CC community.
Third, stress on high-risk exchanges overlooks a wider set of other potentially lower-risk
yet nevertheless important hubs in the CC ecosystem. The focus on the former ‘nodes’ at the
“edges” of the system [18] neglects the money laundering potential in the activities of a host of
other actors more to the core of the ‘altcoin’ ecosytem. The narrow definition of what precisely
constitutes a CC exchange for instance overlooks how the producers of ‘alt-coins’, such as
miners,19 might also serve as key ‘nodes’ in facilitating money laundering. As legal
commentators have pointed out, “although the mining process does not inherently implicate
money-laundering concerns, lucrative transaction fees for miners willing to verify fraudulent
transactions might incentivize criminal behavior” ([75], p. 55). Not ‘going low’ and advocating
that potentially less risky actors be targeted, such as wallet companies, thereby limits the scope
of the FATF guidance ([122, see also [123]).
Despite such shortcomings, the founders and key backers of the FATF- the Group of 7
leading industrialised countries ([124], p. 9)- have supported the attempts of this
intergovernmental organisation to plug the “patchwork of inconsistent and incomplete attempts
to counter criminal abuse of the [blockchain] technology” ([74], p. 1215). Compared with the
19 Miners are the producers of CCs who are rewarded with new CCs for verifying transactions. Brett Scott provides a
useful comparison in likening these actors to a “network of clerks who check to see that participants actually have
the funds they claim to have, and who then record a change to the decentralized blockchain ledger” ([21], p. 2).
Originally indended to be undertaken by individual personal computers, the computing power required to profitably
verify the growing number of transactions on the Bitcoin blockchain now requires specialised computer rigs. The
complexity and expense of such operations has led to the formation of teams- also known as alliances, collectives or
‘pools’- of miners who now control large shares of Bitcoin mining. The size of these pools can be tracked at
nascent efforts of other international regulators,20 the risk-based guidance on recommendations
that are “non-binding, and carry no penalties for violations” ([74], p. 1196) provide for flexible
variation across jurisdictions as well as the building trust between regulators and a CC ecosystem
that is highly distrustful of centralised interventions. The following sub-section highlights further
governance options available and assesses the necessity of such alterantives given the current
status of CCs.
Other Options Exist! But Are They Necessary?
One alternative not considered in the 2015 FATF guidance is the creation of competing national
CCs. Suggestions have been consistently floated by firms and regulators for governments to
create ‘state-sponsored CCs’ [125]. In 2015 the UK Home Office recommended the creation of a
government-backed virtual state currency [126]. Australian, British, Canadian, Chinese, Dutch,
Russian, Singaporean, South Korean, Swedish and Zimbabwean central bankers have all
explored the issuance of national CCs (e.g. [127, 128, 129, 130, 131]. While these ‘state-
sponsored’ CCs are being contemplated for varying purposes,21 the Singapore-based Interpol
Global Complex for Innovation has gone furthest in developing a simulation CC for the training
of AML authorities in spotting the “misuse” of ‘altcoins’ [132].
The option of creating ‘national CCs’ is largely unnecessary at the present time. Beyond
injecting further competition into an increasingly crowded ‘altcoin’ marketplace,22 the creation of
AML-compliant state-sponsored CCs may do little to prevent the use of other CCs in money
laundering. Expending resources to develop national CCs is premature given the absence of
evidence that CCs are being used either as traditional forms of money or for money laundering.
Despite its limits, the 2015 FATF guidance focused on centralised institutions exchanging CCs
into state-backed money as well as to rely on market solutions appear sufficient for the time
being. Nevertheless, given the instabilities fostered by a reliance on market-based processes in
the not-so-distant global financial crisis as well as the inherent difficulties in measuring money
laundering ([113, p. 622), this claim is advanced very cautiously. Before clarifying that this
argument in no way calls for regulatory inaction, the remainder of this sub-section examines the
specific technological features of CCs that the FATF guidance calls on authorities to consider
prior to implementing ‘harsh’ measures such as bans.
Even longstanding critics of technology-based solutions, such as Lawrence Lessig, have
recognised the “enormous potential” that the blockchain underlying CCs provide for addressing a
range of governance gaps (cited in [134]). Blockchains may specifically contribute to least two
aspects of global AML efforts. First, private and semi-private ‘permissioned’ blockchains allow
centralised entities to authorise access to particular CCs [135]. Identabit and Cambridge
Blockchain for instance have built-in proof of identity features that go far beyond the voluntary
20 For instance, BIS merely acknowledged that distributed ledgers are an innovation that could have a range of
impacts on many areas, especially on payment systems and services” [44].
21 The ability to trace transaction is a major incentive. More generally however the fear of missing out on potential
savings from payments servicing, the facilitation of further shifts away from the use of cash, and related enhanced
ability to monitor transactions for both security and tax purposes. The latter is elaborated upon below.
22 As Thomson Reuters Accelus puts it, “if sovereign governments move toward issuing digital currency, then
competition may overwhelm private currency such as Bitcoin” ([133], p.12).
user registration relied upon by even the most AML-friendly CC exchanges [136]. One of the
chief competitors to the Bitcoin blockchain, Ripple, has sealed ‘gateways’ that authenticate
identities and grant permission to users of its CC, which is called XRP. Such gateways have led
Ripple to be regarded as far more “AML friendly” by the Institute of International Finance, the
leading global banking sector association, which has praised the potential of this CC to “enforce
various supervisory measures such as know-your-client (KYC) and anti-money laundering
(AML) procedures” [137]. Firms from the financial ‘upperworld’ have also made considerable
investments in permissioned blockchains to minimise the money laundering potential of ‘alt-
coins’ [100]. The FATF guidance ([107], p.14) endorses these additional applications of
blockchain technologies, explicitly advocating developments “built on fundamentally different
underlying protocols that can build-in risk mitigants or facilitate customer identification and
transaction monitoring”.
Second, the FATF guidance avoids mitigating the wider support blockchain technologies
provide to the information sharing and identity management underpinning global AML efforts.
Blockchains can be utilised to create AML-compliant registries [138] as well as tools to identify
the holders of CC wallets in nearly real-time and create blacklists of users [105, 106]. The Isle of
Man has built on the former in its efforts to become the leading AML-compliant jurisdiction
while more than a half dozen large banks have been trialling variations of the latter. To foster
“more efficient KYC checks” Singapore is drawing on blockchain technologies with a national
know-your-customer platform containing “government-verified personal details of residents”
[139]. Blockchain firms like Switzerland-based Chainalysis are working with a range of
regulators, law enforcement, and financial service providers to determine the origin of CCs held
by any address [140]. Wider applications of blockchain technologies, such as for verifying the
authenticity of identity documents, are being incorporated by firms specialised in the provision
of “identity management” services [141, 142]. The consultancy PwC explains how blockchain
technologies can enable identification procedures:
A wealthy individual who needed to prove their identity could walk into a PwC office with their passport
and identity documents […] The firm’s staff would run checks on who the person was, then scan and
upload the documents on to the blockchain. The next time that person wanted to prove their identity, they
could refer to those records, eliminating the need for later paperwork costing time and money (cited in
These blockchain-based initiatives respond to calls to establish profiles of ‘altcoin’ users by
drawing on Big Data analytics to identify individuals associated with particular CC addresses
[26]. As the journalist Sarah Jeong [144] explains, “because the Bitcoin network necessarily
broadcasts the history of all transactions ever made, analysis of this data can unveil revealing
information about particular nodes and their transactional activities”. By locating particular
patterns of use, companies like BlockTrail and Coinanalytics enhance the ability of
intergovernmental police organisations like Europol and Interpol to match CC transactions with
individual profiles [63, 145]. Transaction flows are associated with identities matching specific
users by drawing on so-called CC ‘forensics’ developed by computer scientists [146; 147]. These
and other initiatives illustrate the “function creep” [148] of blockchain technologies towards
contributing to rather than solely undermining the information and identification efforts of global
AML governance. They also more widely examplify how novel technologies not only challenge
but may also support to regulatory efforts [149; 150]. The paradox of blockchain technology is
therefore, that while AML efforts must “deal with imperfect knowledge of identities”, they “may
exploit perfect knowledge of all transactions” [18].
In advocating rather than undermining the development of such initiatives, the FATF
however does risk encouraging counter measures that may diminish the effectiveness of its
guidance. The advent of blockchain-based identification measures has encouraged the parallel
development of anonymisation techniques. For instance, attempts to identify CC users types have
been countered by ‘anonymizers’ that transfer CCs in and out of state-backed currencies using
different identities [34]. Firms called ‘mixers’ or ‘tumblers’ allow CC users to pool together to
prevent identity tracking by ‘mixing’ and joining transactions together into unpredictable
combinations [151].23 The money laundering capacity of mixers using names like BitLaundry
and Bitcoin Fog has been recognised by computer scientists [18].24 Another technology called
the Dark Wallet developed by a collective of “politically radical coders” including the inventor
of the 3D gun seeks to “neuter” attempts to tie individual identities to CC transactions and
ownership by mixing and further encrypting transaction histories [153]. Finally, CCs like Zcash
and Zerocoin as well as Dash, formerly known as Darkcoin, have arisen to provide complete
anonymity in digital transactions [154, 155, 156]. Reflecting these developments, a wider split
has occurred between advocates and sceptics of efforts to harness blockchain technologies in
support of global AML efforts [35].
Complex efforts to maintain anonymity and avoid centralisation however threaten to push
the CC ecosystem further into to financial ‘underworld’ while limiting its wider attraction for
either legitimate or illegitimate uses as traditional forms of money in the financial ‘upperworld’.
Indeed, the practical and intellectual complexities involved with ‘mixing’ and further encryption
of transactions are unlikely to enhance the attractiveness of these CCs for either money
laundering or for more everyday monetary transactions. Legal researcher have already attributed
the lack of “large-scale” money laundering with CCs to “a lack of technical knowledge and
resources among the relevant populations” ([43], p. 336). Short of significantly reducing these
technical hurdles, the FATF guidance appears to provide an effective balance between the actual
opportunities and potential challenges that the advent of CCs presents to global AML
What are the implications of ‘crypto-coins’ (CCs) like Bitcoin for global anti-money laundering
governance? This article argued that the threats CCs pose to global AML efforts are presently
more theoretical than actual. Despite at times sensationalistic media coverage, little evidence
directly implicates CCs in widespread money laundering. As sociologist Ole Bjerg reminds us,
money laundering did not originate with the advent of CCs ([3] p. 69). National currencies and a
host of other digital technologies currently present equal if not greater money laundering
challenges [157]. CCs provide less of a threat and more of an opportunity to global efforts to
combat this illicit practice. Focusing on the novel technological features underlying CCs rather
23 See for instance the anonymisation method ‘CoinJoin’:
24; Bit Fog was linked to the laundering of stolen Bitcoins from a Chinese
exchange in 2015 [152].
than their conventional uses as traditional forms of money, helps to consider not only the threats
but also the concrete possibilities for ‘altcoins’ to support global AML efforts.
How effectively has the global AML regime balanced the challenges and opportunities
presented by the emergence of Bitcoin and competing CCs? This article contended that in spite
of several important limits, the risk-based approach pursued by the FATF provides an effective
balance in mitigating the potential risks and actual opportunities that CCs present to global AML
efforts. Its decentralised risk-based approach was regarded as appropriate for addressing money
laundering in the decentralised networks in which CC transactions occur. The FATF more
widely approach accords with networked and experimental forms of governance that may be
more effective than centralised forms of coercion in digital realms where operations can shift to
less restrictive jurisdictions with relative ease and speed. Nevertheless, this argument was
advanced cautiously, recognising several risks with the risk-based approach, such as the reliance
on technologies and market-based solutions.
Together then these arguments should be taken as a call for moderation between inaction
and overreaction. Networked and decentralised approaches still involve persistent roles for the
monitoring for which the FATF is renowned. Should CCs begin to more closely resemble
conventional forms of money- particularly as media of exchange and more stable stores of value-
as well as to be used for money laundering, then more traditional approaches might need to be
considered. Yet how exactly ‘harsher’ approaches, such as those undertaken to shut down Silk
Road 1.0 and 2.0, might be implemented and international coordinated in manners that avoid
global races to the bottom remain of central importance for policy-makers and scholars alike to
Wider methodological and epistemological issues also require further contemplation.
How evidence of money laundering might be collected from activities characterised by pseudo-
anonymity? How much evidence might be necessary to justify coercive international action?
How can the coordination and assessment of global anti-money laundering efforts evaluate the
ethical implications arising from applications of novel technologies allow for both the
undertaking and monitoring of digital transactions? Scholars are only now beginning to address
these wider issues with regards to CCs [e.g. 158; 159; 160]. Just as the horizons of research on
money can be expanded, so to can measurements of effectiveness include the ethical, political,
social, as well as economic implications stemming from the rapid and unpredictable changes to
the character of global financial flows in the twenty-first century.
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... With the continuous development of blockchain technology, the application ecology based on blockchain is constantly changing the Internet. While these applications gradually expand the use boundaries of the blockchain, they also bring many problems, such as gambling [45], money laundering [13], darknet transactions [12], and hacker attacks [38]. In recent years, more and more researchers paid attention to these problems and strived to solve them using novel techniques. ...
With the popularity of cryptocurrencies and the remarkable development of blockchain technology, decentralized applications emerged as a revolutionary force for the Internet. Meanwhile, decentralized applications have also attracted intense attention from the online gambling community, with more and more decentralized gambling platforms created through the help of smart contracts. Compared with conventional gambling platforms, decentralized gambling have transparent rules and a low participation threshold, attracting a substantial number of gamblers. In order to discover gambling behaviors and identify the contracts and addresses involved in gambling, we propose a tool termed ETHGamDet. The tool is able to automatically detect the smart contracts and addresses involved in gambling by scrutinizing the smart contract code and address transaction records. Interestingly, we present a novel LightGBM model with memory components, which possesses the ability to learn from its own misclassifications. As a side contribution, we construct and release a large-scale gambling dataset at to facilitate future research in this field. Empirically, ETHGamDet achieves a F1-score of 0.72 and 0.89 in address classification and contract classification respectively, and offers novel and interesting insights.
... With the continuous development of blockchain technology, the application ecology based on blockchain is constantly changing the Internet. While these applications gradually expand the use boundaries of the blockchain, they also bring many problems, such as gambling [41], money laundering [11], darknet transactions [10], and hacker attacks [35]. In recent years, more and more researchers paid attention to these problems and strived to solve them using novel techniques. ...
Full-text available
With the popularity of cryptocurrencies and the remarkable development of blockchain technology, decentralized applications emerged as a revolutionary force for the Internet. Meanwhile, decentralized applications have also attracted intense attention from the online gambling community, with more and more decentralized gambling platforms created through the help of smart contracts. Compared with conventional gambling platforms, decentralized gambling has transparent rules and a low participation threshold, attracting a substantial number of gamblers. In order to discover gambling behaviors and identify the contracts and addresses involved in gambling, we propose a tool termed ETHGamDet. The tool is able to automatically detect the smart contracts and addresses involved in gambling by scrutinizing the smart contract code and address transaction records. Interestingly, we present a novel LightGBM model with memory components, which possesses the ability to learn from its own misclassifications. As a side contribution, we construct and release a large-scale gambling dataset at to facilitate future research in this field. Empirically, ETHGamDet achieves a F1-score of 0.72 and 0.89 in address classification and contract classification respectively, and offers novel and interesting insights.
... Because of the anonymity of cryptocurrencies, Campbell-Verduyn [12] discusses that combat money laundering efforts currently require to be improved, because it does not detect money laundering in cryptocurrencies such as Bitcoin, Ethereum, Ripple, and Litecoin. Traditional systems were used by financial institutions specifically on cryptocurrency exchanges, to detect illegal transactions. ...
... Instead, the ledger (and copies of it) is maintained by its users, acting semi-anonymously through consensus mechanisms to authenticate and add new transactions using cryptographic methods (Choo 2015). Blockchain is perhaps the most prominent example of a distributed ledger, where users can trade cryptocurrencies (digital tokens representing value) with each other (Campbell-Verduyn 2018). DLT is also evolving further to allow the trade of other forms of assets, represented digitally through associated cryptotokens, without mediators or central authority oversight (Tapscott and Tapscott 2016). ...
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New and disruptive technologies, including cryptocurrencies and new payment methods, are revolutionising the way people engage with finance. Although they provide significant benefits to consumers, they are also inadvertently creating new money laundering and terrorist financing risks. This paper examines the risks that are, or are predicted to be, prevalent in three technology sectors—distributed ledger technologies (including cryptocurrencies), new payment methods and financial technologies (FinTech), through a systematic scoping review process. Specifically, the paper identifies enablers of both crimes, the precise criminal methods they might facilitate, at-risk stakeholders (of exploitation and/or complicity) and risk characteristics. The study involves systematic scoping reviews of the academic and futures literatures as well as a consultation exercise with experts to assess the likely veracity of the findings. In addition to identifying an array of specific risks, we identify six underlying trends that facilitate them. We discuss these, their policy implications, future directions for research and their benefit for conducting risk assessments to assess forthcoming technological developments.
... They also correlate these transactions with wallet addresses that cryptocurrency exchanges know their owners [7]. Based on their knowledge of blockchain analysis and sophisticated software analysis, these companies became new outsourcing partners of LEAs and revenue services in many countries struggling to tackle crypto-laundering [97,106]. Engaging these private sector actors with LEAs became vital to tackle the global crypto-laundering threat. ...
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This article examines the compatibility of the Global Conference on Criminal Finances and Cryptocurrencies with a sharing economy model. The analysis is based on the claims presented in Europol documents and public statements of Europol executives that this initiative serves as a platform for knowledge exchange and building professional networks between public and private actors to tackle crypto-laundering. The article investigates the validity of these statements with the most prominent sharing economy concepts: low barrier accessibility, transaction cost and trust-building. The article employs each sharing economy concept on two beneficiaries of the platform—law enforcement agencies (LEAs) and non-governmental organizations—while scaling the platform’s sharing economy level. Based on Europol documents, an expert interview and participant observation of the 5th Global Cryptocurrency Conference, the article’s core argument is that these cryptocurrency conferences can be categorized as a ‘partial’ sharing economy platform. They reduce the transaction cost for public and private actors to share knowledge about the latest trends and threats about crypto-laundering and reduce transaction costs for networking. However, co-founders should consider integrating robust trust-building mechanisms that allow low barrier entry to the conference, which will facilitate more inclusive and optimized public–private partnerships (P3).
Money laundering involves placement, layering, and integration to transfer and convert illicit fiat currency into legitimate assets. The process often relies on multiple local and remote participants that use numerous financial institutions and complex instruments to obfuscate the trail and origin of illicit funds. The use of the Internet, combined with cryptocurrency and blockchain development, has enabled money launderers to expand their activities into cyberspace. Cyber laundering provides quick, easy, low-cost, anonymous transactions and circumvents traditional detection techniques used by the authorities. In contrast to traditional money laundering, cyber money laundering is relatively new, and cryptocurrency and the blockchain make it technically complex. The inherent complexity and reach of the technology have contributed to in-cohesive and fragmented regulatory and enforcement structures across jurisdictions. This chapter presents an overview and comparison of traditional and cyber money laundering methods and operationally compares traditional and cyber money laundering. The work also covers existing legal and regulatory frameworks, identifies areas of necessary improvement, and proposes potential technical and nontechnical anti-cyber laundering remedies.
According to previous research, Cryptocurrency is a driver of money laundering and associated with several risks (e.g., Fletcher et al., 2021; Teichmann and Falker, 2020); Tsuchiya and Hiramoto ,2021). As a result, the purpose of this paper is to concentrate on empirical research in the accounting and finance fields that deal with the impact of cryptocurrencies on the phenomenon of money laundering. To identify relevant literature, we use the following keywords including "cryptocurrency or digital money" and "Bitcoin and money laundering." We identify 28 research papers published between 2011 and 2021.The findings of the studies that were reviewed emphasized the importance of developing a legal framework for digital currencies. Furthermore, it was revealed that all stakeholders play an important role in lowering the risk of money laundering and illicit activities.The findings highlight the critical role that banks, regulators, and all stakeholders play in reducing money laundering risks. These findings may have policy implications for governments aiming to improve cryptocurrency laws and regulations by enforcing financial security standards and laws and monitoring individuals' and firms' compliance with them. The review identifies some of the literature's limitations and suggests future research directions.
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Developments in digital technologies are considered to be the most important innovations since the advent of the internet. In several countries, this has led to a significant change in the way payments are made, leading to new forms of payment, such as crypto-currencies. With regard to cryptocurrencies, it remains a complex issue involving especially volatility, but also money laundering and consumer protection issues. While most countries consider cryptocurrencies too volatile to be used as a payment alternative, crypto-currencies gain interest of investors in the last 10 years due to the possibility of obtaining large profits. The aim of the paper is to study the volatility of the first 5 cryptocurrencies (Bitcoin, Ethereum, Binance Coin, Cardano and Ripple) through GARCH models. The process of evaluating highly volatile cryptocurrencies is complex and depends on many parameters. Therefore, our results would be particularly useful in terms of portfolio and risk management and could help them to be more agile in evaluating their investments, in making optimal decisions and making future forecasts. We find that the GARCH (1.1) models provide the best fit, in terms of modelling of the volatility in the most popular and largest cryptocurrencies. The results show that for BTC, ETH and XRP the appropriate model is GARCH (1.1) and in the case of BNC and CARDANO GARCH-M explain better the volatility of the crypto-currencies. Therefore, more in depth analysis of the datasets may be required to confirm or deny possible structural change. The study can be complemented by carrying out an event study on the 5 cryptocurrencies analyzed or extending the analysis by applying other GARCH models, to research the optimal model for several cryptocurrencies.
Blockchain and cryptocurrency are two terms that go parallelly. we are hearing it in our daily life. Cryptocurrencies also known as cryptos are game changers of our lives. Unlike money that is issued and regulated by the government crypto isn’t controlled by any government or any persons. This is accomplished by the use of blockchain that makes the topic more curious. This work explains about the impact of the cryptocurrencies in the world. This paper says more about the non-technological aspects of cryptocurrencies that includes how it came into existence, why it used now, how it is seen by the world.
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This volume comprises a selection of papers prepared for the Second Colloquium on Cross-Border Crime, held in Budapest, Hungary, at the National Institute of Criminology (OKRI) in September 2000.
Bitcoin has been described as a decentralised virtual currency. Virtual currencies such as Bitcoins are a form of money and a payment system. However, being a decentralised system, there is no central issuer, authority or register-keeper. Bitcoin is unique not because it is a virtual currency, but because it is proof of concept of a decentralized non-issued electronic currency. Regulation of virtual currencies is at a very early stage. Most regulatory regimes are not well designed to cater for this type of payment system. However, creating and protecting trust is a crucial issue in the regulation and public acceptance of new payment services. It is generally accepted that adequate regulation is a key pre-cursor to consumer acceptance of new payment methods, including mobile banking and payments. This paper examines the legal and regulatory status of virtual currencies.
Some two decades after an earlier review essay of mine, the time seems ripe to revisit the international political economy (IPE) of money. How has the study of money evolved in more recent years, and what is the understanding of international monetary politics today? The main message of this essay is – to be blunt – disappointment. Research has become increasingly insular and introspective, largely detached from what goes on in the real world. Two parallel developments are responsible, both reflective of wider trends in mainstream IPE. First is a steep decline of interest in broader systemic issues, as the pendulum has swung sharply toward the domestic level of analysis. And second is a marked loss of interest in practical policy solutions. In lieu of worries about problems to be solved, scholarship today tends to be driven more by curiosity about puzzles to be explained. The roots of these twin developments trace back, above all, to the framing effect of epistemology – the demanding methodological standards that mainstream IPE has set for itself. The fault lies, first and foremost, with the excessive priority given to formal scientific method.
Purpose The purpose of this paper is to look at current discourse on the topic of crypto-currencies, more specifically Bitcoins, and their application to funding acts of terror. The paper clearly establishes the risks posed by this new payment technology and value transfer system to assist in the process of funding, planning and implementing acts of terror. Design/methodology/approach Publications, blogs and sites published and administered by terrorists groups and their supporters are examined to determine their interest in leveraging emerging payment and value transfer systems to facilitate the funding, planning and implementation of terror attacks. Press releases and other publications are also examined to determine whether crypto-currencies have been used by these groups in fund raising, fund transfer or recent terror attacks. Findings Although it is difficult to find concrete evidence of largescale use of Bitcoins and other crypto-currencies by terrorist groups and their supporters, there is strong evidence to suggest that they have been linked to a number of terror attacks in Europe and Indonesia. Supporters of Islamic State of Iraq and Syria (ISIS), jihadists and terrorist organisations are actively looking to and promoting the use of new and emerging technologies, such as Bitcoin, to mitigate some of the risks associated with traditional fund transfer methods. Some websites associated with terrorist organisations have started to collect donations in Bitcoins. Many Bitcoin ATMs and Bitcoin exchanges are located in countries that have seen significant numbers of foreign fighters join ISIS in the Middle East and are also positioned in countries that have seen increased risk of terror attack. These present a significant risk because they allow for the seamless, anonymous transfer of funds to and from terrorist groups and their supporters. The paper highlights the need for further in-depth research into reliable ways to circumvent the current difficulties experienced in differentiating illicit transactions from legitimate ones and establishing reliable means of attribution. Originality/value Using a document published by ISIS, which provides would-be jihadists detailed instructions on how they can get to Syria or Iraq without being detected, a set of models were created showing how this could be achieved using Bitcoins alone. From this scenario, red flag indicators and suspicious behaviour models have been created to determine whether they can be identified during detailed analysis of the Bitcoin blockchain which will be conducted in later stages of research.
This survey article outlines a comprehensive investigation of research carried out on dielectric resonator antennas (DRAs) in the last three and half decades, in an application-oriented approach. DRAs have created a remarkable position in antenna engineering for their adept characteristics like high efficiency, low loss, wide bandwidth, compact size, 3-dimensional modeling flexibility, etc. The use of DRAs for different commercial and defense applications associated with the wireless communication is highlighted in this article. To make a smooth and effective survey article, all the application-oriented DRAs available in the open literature are classified in five different categories like microwave bands, specific frequency, technology, millimeter-wave, and miscellaneous types. The ultimate aims of this review article are as follows: (i) highlights the usability of DRAs for different commercial and defense applications, (ii) helpful for the antenna industries/manufacturers to find out the best DRA for any specific application as per their requirement, and (iii) points out research gap in some application domains which will be quite helpful for future antenna researchers. In the authors' opinion, this survey may be helpful to DRA researchers as such a survey process is not available in the open literature.