Evaluating cryptocurrency laundering as a complex socio-technical system. A systematic literature review
| Published date | 02 July 2019 |
| Pages | 480-497 |
| DOI | https://doi.org/10.1108/JMLC-10-2018-0063 |
| Date | 02 July 2019 |
| Author | Dennis B. Desmond,David Lacey,Paul Salmon |
| Subject Matter | Financial risk/company failure,Financial compliance/regulation,Financial crime |
Evaluating cryptocurrency
laundering as a complex
socio-technical system
A systematic literature review
Dennis B. Desmond,David Lacey and Paul Salmon
Centre for Human Factors and Sociotechnical Systems,
University of the Sunshine Coast, Sunshine Coast, Australia
Abstract
Purpose –The purpose of this paper is to present the findings from a literature review, which aimed
to identify previous studies evaluating cryptolaundering from a systems thinking perspective. The
aim of this paper is to first confirm that cryptolaundering systems can indeed be defined as complex
socio-technical systems and second to present the findings from a systematic review of the literature
to determine the extent to which previous research has adopted a systems thinking perspective.
Design/methodology/approach –The study involved a SLR of studies published in the peer-reviewed
literature between 2009 and 2018. Rasmussen’srisk management framework (Rasmussen, 1997) was used to
evaluatethe extent to which a systems thinking perspective had been adopted.
Findings –The cryptolaunderingprocess is considered to be a complex socio-technicalsystem. The review
demonstrates thatno previous studies have defined cryptolaundering as a complexsocio-technical system or
used systems thinkingframework approach to evaluate how criminals,regulatory bodies or law enforcement
entities understand processesand assess risk within cryptolaundering systems. It is argued that using such
an approach to the cryptolaundering process would likely improve assessing criminal risk analyses of
cryptolaundering and assist law enforcement and regulatory bodies with understanding risk management
during the launderingof cryptocurrencies.
Originality/value –Future assessments of cryptolaundering using socio-technical system analytical
processes may afford law enforcement and regulatory bodies the opportunity to improve intervention
techniquesand identify gaps in regulations and enforcement.
Keywords Cryptocurrency, Money laundering, Socio-technical systems
Paper type Literature review
1. Introduction
With the rise of Dark Web marketplacesand online black markets, there has been a demand
for secure, discreet, online payment instruments using untraceable digital currencies
This research was partially funded by the Australian Government through the Australian Research
Council’s Linkage Projects funding scheme (LP160100277) and the project partners (The University
of Queensland, University of Southampton, Queensland Police Service, IDCARE, Australian Postal
Corporation, Department of Home Affairs, Australian Criminal Intelligence Commission and the
Australian Transaction Reports and Analysis Centre). The views expressed herein are those of the
authors and are not necessarily those of the Australian Government, Australian Research Council or
the project partners.
Professor Paul Salmon’s contribution to this article was funded through his Australian Research
Council Fellowship (project number FT140100681).
JMLC
22,3
480
Journalof Money Laundering
Control
Vol.22 No. 3, 2019
pp. 480-497
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-10-2018-0063
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1368-5201.htm
disassociated from true user identities. The most commonly used financial instrument
adopted for this purpose is cryptocurrency. A lack of central control, coupled with its
seemingly secure and anonymous nature, facilitated the use of cryptocurrencies for
concealing traditionalcriminal proceeds while fostering an increase in laundering platforms
(Goldman et al.,2017;Hunt,2011).
The development and growth of internet e-commerce required a digital financial
instrument that afforded the trust, portability, anonymity and other attributes of cash,
but allowed for the same international transferability, security and recognizability as
credit cards (Drainville, 2012;Merlonghi, 2010).Theanswercameintheformof
cryptocurrencies, with the most successful version being Bitcoin in 2009 (Drainville,
2012;Nakamoto, 2008). This digital currency ecosystem provided an attractive
alternative to conventional fiat currencies and facilitated the movement of funds with a
dubious past (Merlonghi, 2010).
Although not designated as fiat currencies or “real”money, cryptocurrencies have
nevertheless been fully integrated into traditional “money”laundering processes (Ajello,
2014;van Wegberg et al., 2018). The most commonly used cryptocurrency for both
legitimate use and illicit purchases remains Bitcoin (Reynolds, 2017;Davidian, 2017;van
Wegberg et al., 2018).
Traditional laundering of proceeds derived from criminal activities measures in the
trillions of dollars USD worldwide (Levi, 2017;Ajello, 2014). Estimates of the value of
cryptocurrency laundering (cryptolaundering) may amount to over US$1bn
(CipherTrace, 2018), but statistics are difficult to come by as cryptolaundering occurs
outside the traditional financial system and involves the use of anonymous or false
identities and unregistered businesses (Holt, 2013;Hunt, 2011;Hutchings and Holt,
2017;Fanusie and Robinson, 2018;van Wegberg et al., 2018;Foley et al., 2018). An
absence of consistent global regulations and policies combined with a lack of technical
understanding and systematic approaches to countering cryptocurrency money
laundering have hampered enforcement agencies from being more effective in their
efforts (Houben and Snyers, 2018). This lack of consistent and coordinated efforts in
countering cryptocurrency laundering has allowed for exploitation by criminals and an
increase in associated illicit activities.
How criminals assess and manage risk during the cryptolaundering process is of
great interest to law enforcement and regulatory agencies. Perpetrators face the loss of
assets from scams, theft and law enforcement actions (Lavorgna, 2015). Market
volatility causes rapid changes in profit and loss within illicit marketplaces and
acceptance of various cryptocurrencies varies by country and business (Sovbetov, 2018).
From a regulatory perspective, “know your customer”(KYC) efforts are difficult to
enforce, and therefore, risk of detection is low (Moser, 2013; Campbell-Verduyn, 2018;
Deakin and Liu, 2018).
International standards and agreement on both the status of cryptocurrencies and
their regulation are both inconsistent and creates gaps criminals may exploit (Davidian,
2017;Houben and Snyers, 2018). Moreover, unlike traditional money laundering,
cryptolaundering can occur entirely within the confines of a cryptocurrency ecosystem
making detection, regulation and enforcement difficult (Fanusie and Robinson, 2018).
It is apparent that cryptolaundering occurs within a complex sociotechnical system.
Such systems are defined as systems comprising human, technological and technical
elements working together to achieve a shared goal of some sort (Walker et al., 2006).To
understand the behaviour of complex sociotechnical systems, a so-called systems
approach is required, which entails taking the overall system as the unit of analysis and
A complex
socio-technical
system
481
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