Cryptoassets, terrorism financing, money laundering and regulations – current situation

Many people still question the link between illegal transactions, terrorist financing and money laundering, but the numbers speak for themselves.

In 2022, the use of cryptocurrencies for illegal transactions was estimated at over $20 billion.

There are two schools of thought: those who believe in traceability through blockchain and realists who know that even the most sophisticated systems can be compromised, that criminals are always one step ahead of legislators and that the breeze of money attracts all kinds of scammers and fraudsters.

According to cryptocurrency trading simulator Crypto Parrot, the number of new cryptocurrencies increased by 68.75% between September 2020 and September 2021 and by 28% between 2023 and 2024.

Debates about Bitcoin – and cryptocurrencies more generally – are rooted in anxiety felt by traditional financial circuits and regulators. Heated discussions on this topic will continue for some time.

The undetectable nature of cryptocurrencies makes them an ideal tool for cybercriminal activities such as drug trafficking, child pornography and terrorism financing. Cryptocurrencies are indeed ubiquitous on the dark web, where they facilitate untraceable payments in cybercrimes.

The Financial Action Task Force believes that the most significant money laundering and terrorist financing risks relate to conversion interfaces between cryptocurrencies and legal tender, highlighting the need to regulate these exchange platforms and other conversion intermediaries that facilitate money laundering.

In 2018, the Banque de France issued a note titled “The Emergence of Bitcoin and Other Cryptocurrencies: Issues, Risks and Prospects” which stated that “regulation of cryptocurrency activities is recommended for four main reasons.” These were: the fight against money laundering and terrorist financing, which has the highest priority; investor protection; maintaining market integrity in light of cyber risk; and finally, if this activity continues to expand, concerns about financial stability.

In short, the Banque de France and the French Prudential and Resolution Authority are advocating for broader supervision of cryptocurrency services to regulate services provided at the interface between real world and cryptocurrencies and monitor cryptocurrency investments. assets. The position of the French authorities therefore comes down to integrating and regulating cryptocurrencies, not banning them.

Europe recently introduced the Cryptocurrency Markets Regulation, which will establish a legal framework for Bitcoin in all member states from the end of 2024.

Earlier, in response to the ever-increasing role of cryptocurrencies in cybercrime, in April 2023 the European Parliament adopted the first legal act on tracking transfers of cryptocurrencies such as Bitcoin and e-money tokens.

According to a press release from the European Parliament, the rules, which were initially agreed by negotiators in June 2022, “aim to ensure that cryptocurrency transfers, as with any other financial operation, are always traceable and that suspicious transactions “blocked”.

This regulation covers transparency, disclosure, authorization and supervision of transactions.

In February, the US Department of Justice announced terrorism, sanctions evasion, fraud and money laundering charges against seven key figures in an oil laundering network linked to the government of Iran, a major supplier of oil to China, Russia and Syria.

Circumvention of these indictments and embargoes has been facilitated, at least in part, by the use of cryptoassets.

Iran has eagerly embraced cryptocurrency mining, at times exceeding its domestic energy capacity and leading to temporary shutdowns of mining operations.

This is what caught the attention of Senator Elizabeth Warren of Massachusetts, a cryptocurrency expert and vocal critic of Bitcoin’s widespread use in the US. It addressed this issue with a bill known as the “Anti-Money Laundering Act” in December 2023, intended to restrict the use of cryptocurrencies in the US.

In a May letter to the Department of Defense and Treasury, Warren highlighted the risk of legalizing cryptocurrency mining in Iran. This practice enabled the transfer of significant resources to finance both the country’s own administration and Hamas.

In fact, Hamas had some of its members’ accounts frozen by the Israeli government on Binance, now the world’s leading crypto platform. According to The Wall Street Journal, Hamas raised over $41 million in cryptocurrencies between August 2021 and June 2023.

According to an Iranian report, in 2021, the Tehran government could generate $2 million per day and $700 million per year in direct cryptocurrency revenues.

There is an old Arabic saying that you should chase a thief to the door of his house. And it’s no wonder that as we pursue Iranian crypto assets, we end up at Hamas’s doors in Yemen, Lebanon and elsewhere.

Lawmakers will continue to grapple with the issue of regulating cryptocurrencies, which remains a political issue.

How can a country like the US position itself as a global hub for cryptocurrencies while protecting against their misuse and exploitation? How can it regulate extremely large volumes and still support unrestricted capitalism?

The case is undoubtedly political in nature, although it remains intriguing. Nevertheless, idealists must give way to pragmatists and political realism.

In any case, they will be credited with sparking debate, even if they haven’t yet found a way to continue it.

Nathalie Goulet is a French senator from the Orne department in Normandy and author of the book “An ABC of Terrorist Financing” published by Cherche-Midi. X: @senateur61

Disclaimer: The views expressed by authors in this section are their own and do not necessarily reflect the views of Arab News