Money laundering with cryptocurrency: open doors and the regulatory dialectic
| DOI | https://doi.org/10.1108/JFC-06-2020-0113 |
| Published date | 10 August 2020 |
| Date | 10 August 2020 |
| Pages | 60-74 |
| Subject Matter | Accounting & finance,Financial risk/company failure,Financial crime |
| Author | Daniel Dupuis,Kimberly Gleason |
Money laundering with
cryptocurrency: open doors and
the regulatory dialectic
Daniel Dupuis and Kimberly Gleason
Department of Finance, School of Business Administration,
American University of Sharjah, Sharjah, United Arab Emirates
Abstract
Purpose –The purposeof this study is to describe the opportunitiesand limitations of cryptocurrenciesas a
tool for money launderingthrough six currently available “open doors”(exchange mechanisms).The authors
link the regulatorydialectic paradigm to know your customerand anti-money laundering evasiontechniques,
highlight six tactics to launder funds with virtual assets and investigate potential law enforcement and
regulatoryalternates used to reduce the incidenceof money laundering with digital coins.
Design/methodology/approach –The methodology used is the analysis of significant recent events
and the availability of “fintech”crime-fighting tools and a literature review focusingon the application of the
regulatory dialectic to innovations in existing crypto-asset markets that make them compelling to money
launderers.
Findings –The authors examine the illicit use of cryptocurrency through Kane’s regulatory dialectic
paradigm, identifya number of avenues for crypto to fiat exchange that are still availablefor those seeking to
launder money using digital coins,review recently “closed doors”and make recommendations regardingthe
regulationof crypto-related markets that may assistin making them less desirable for potential criminals.
Research limitations/implications –The research is constrained by the state of the market for crypto
to fiat exchangeas of time of writing; the technology and products to launder money using theseopen doors is
continuallychanging (as predicted by the regulatorydialectic).
Social implications –The regulatory dialectic predicts that regulatory response is reactive and often
increasingly burdensomeor oppressive. There is continuous innovation in the cryptocurrencymarket, which
seeks to preserve privacy and anonymity with which regulators seek to keepup. From a social perspective,
the response of bank regulatorsworldwide to existing open doors for crypto to fiat exchangeused for money
laundering may provecostly to individuals engaging in legitimate transactions,as well as financial criminals
and may alsoerode the ability of individuals to maintainprivacy regarding their financial information.
Originality/value –To the authors’knowledge, thereare yet no broad overview regarding the feasibility
of money launderingacross crypto-related assets within the paradigm of the regulatorydialectic.
Keywords Bitcoin, Cryptocurrency, Money laundering, Internal controls, KYC, AML, Regulatory Dialectic
Paper type Conceptual paper
1. Introduction
Bitcoin and other digital coins are of great interest to speculators, criminal entities, law
enforcement and regulators. While many of those who hold Bitcoin have legitimate
purposes in mind such as investment or payment for goods and services, there is
evidence that cryptocurrency is linked to criminal activities resulting in money
laundering. Foley et al. (2019) examine the scope of the use of cryptocurrencies and note
that, based on their estimates, approximately 46% of Bitcoin transactions facilitate
illegal activity, arguing that “cryptocurrencies are transforming the black markets by
enabling black e-commerce”.
JFC
28,1
60
Journalof Financial Crime
Vol.28 No. 1, 2021
pp. 60-74
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-06-2020-0113
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