Sumit Kumar Sharma, Enterprise Architect at In2IT.
Sumit Kumar Sharma, Enterprise Architect at In2IT.

Criminals using cryptocurrency as an easy way to launder ’dirty’ money

By Opinion Time of article published Jan 4, 2021

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Sumit Kumar Sharma, Enterprise Architect at In2IT.

Money laundering is a global problem that will only get worse as technology developments make it increasingly easier and faster to move money anywhere in the world. As a result, criminals have started using cryptocurrency as an easy way to launder “dirty” money.

According to the UN, the estimated amount of money laundered globally in one year is between 2% and 5% of the global Gross Domestic Product (GDP), which is between $800 billion (nearly R11.8 trillion) and $2 trillion.

One of the most high-profile cases of money laundering in South Africa’s recent history involved the infamous Gupta brothers, who were alleged to have laundered about R500m by conservative estimates.

However, the Financial Intelligence Centre Act (Fica), which is South Africa’s primary anti-money laundering and counter-terrorism financing legislation, has been in force since 2003, and should to some degree have prevented this.

Since then, the country’s regulatory compliance and legal frameworks around money laundering have been strengthened and South Africa complies with international regulatory bodies such as the International Monetary Fund (IMF) and the Financial Action Task Force (FATF).

The South African Reserve Bank (SARB) recently widened its supervision scope to include insurance entities. This is mandated by Fica and will help our fight against AML/CFT. It seems like we are making the right calls and putting the right frameworks into place to combat this scourge.

It is encouraging to see that local banks and financial institutions are facing stiffer fines for non-compliance with regulations set out in the Protection of Personal Information (PoPI) Act, as well as the requirements of Know Your Client (KYC) and AntiMoney Laundering (AML) laws.

AML is a set of policies, procedures and technologies that prevent money laundering by forcing financial institutions to monitor their clients and requires these organisations to report any financial crime they detect to relevant authorities.

There are three phases to money laundering: a) Placement, which involves putting illicit money into the system through assets, property or even cryptocurrency; b) Layering, which is the act of separating one’s identity from this money, for instance through a series of shell companies; and c) Integration, which involves moving the laundered money into the economy mainly through the banking system.

Cybercriminals are increasingly using cryptocurrencies to launder money, especially as it is a very easy solution for layering – detaching themselves from “dirty” money. In many countries, including South Africa, cryptocurrency is not a legal tender and does not have the backing of central banks.

SARB recently published a position paper that provides a much clearer view of its position regarding regulating the cryptocurrencies.

However, this has opened a huge market for unregulated cryptocurrency and cybercrooks are exploiting the openness of the platform and the technology behind it to hide their identities and move illicit money seamlessly across international borders.

Our cryptocurrency regulations have lot of scope to improve and money laundered here could have a tragic impact elsewhere in the world. We too have to take it more seriously.

* The views expressed here are not necessarily those of Independent Media.

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