Virtual currencies and money laundering: existing and prospects for jurisdictions that comprehensively prohibited virtual currencies like Pakistan
| Date | 10 May 2023 |
| Pages | 395-412 |
| DOI | https://doi.org/10.1108/JMLC-02-2023-0024 |
| Published date | 10 May 2023 |
| Author | Nasir Sultan,Norazida Mohamed,Mervyn Martin,Hafizah Mohd Latif |
Virtual currencies and money
laundering: existing and prospects
for jurisdictions that
comprehensively prohibited
virtual currencies like Pakistan
Nasir Sultan
Department of Management and Administrative Sciences,
University of Gujrat –Hafiz Hayat Campus, Gujrat, Pakistan
Norazida Mohamed
Accounting Research Institute (HICoE), UiTM Shah Alam, Shah Alam, Malaysia
Mervyn Martin
Department of Law and Policing, Teesside University, Middlesbrough, UK, and
Hafizah Mohd Latif
Department of Built Environment Studies and Technology,
Universiti Teknologi MARA Perak Branch, Seri Iskandar, Malaysia
Abstract
Purpose –This study aims to examine the Financial Action Task Force’s recommendations on virtual
currencies(VCs) and how Pakistan has responded to them.
Design/methodology/approach –Qualitative document and jurisprudence analysis techniques were
used to achieve the study’sgoal.
Findings –According to this study, VCs are modernFinTech that no jurisdiction can ignore. However,
Pakistan has not adopted regulationsto govern VCs but comprehensively prohibits their use. It is primarily
due to the apathy of variousregimes and regulators. Furthermore, the geographicallocation, undocumented
economyand rampant corruption could facilitate theabuse of VCs for money laundering.
Originality/value –This study has provided a significantoverview for developing regulations for VCs in
Pakistanand other developing jurisdictions withthe same characteristics.
Keywords Money laundering, Virtual currencies
Paper type Research paper
Introduction
Financial globalisation has increased people’s capacity to invest in monetary instruments
beyond national borders (Lim, 2013). Further, the rise of the dark Web market demanded a
secure but discreet online financial instrument using untraceable technology that can
disassociate users’trueidentities (2011: Weber et al., 2019;Goldman et al., 2017;Hunt, 2011).
It triggered the emergence of virtual currencies (VCs). With a lack of central control and a
secure and anonymous nature, VCs facilitated the concealment of traditional criminal
proceeds through laundering (Zulhuda, 2017:Desmond et al.,2019:Albrecht et al.,2019).
Virtual
currencies and
money
laundering
395
Journalof Money Laundering
Control
Vol.27 No. 2, 2024
pp. 395-412
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-02-2023-0024
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1368-5201.htm
Therefore, the misuse of VCs has reached a staggering e7bn globally (Houben and Snyers,
2018).
Currently, 5,315 VCs are available globally (Nawangand Azmi, 2021). It established the
increasing acceptance of VCs. The market capitalisation of all VCs peaked at US$28bn
(Bratspies, 2018). However,despite its rampant evolution, regulators in several jurisdictions
have not recognised VCs (Sukumaranet al., 2022) but warned the general public not to trade
in such instruments. Nevertheless, against all odds, VCs are gaining acceptance as most
jurisdictions have started regulating them (Global Legal Research Center, 2018), especially
the developed ones. Thus international organisations warned the jurisdictions against the
threat and encouraged them to regulate VCs. However, Pakistan has comprehensively
prohibited VCs and related issues.
The first VC exchange went online in 2010 (Wronka, 2021). Famous VCs include
Bitcoin, Ethereum and Solana. The most commonly used VC is Bitcoin, which is used for
legitimate and illicit purchases (Davidian, 2017:Reynolds, 2017;van Wegberg et al.,
2018). Bitcoin has the maximum market share of 50% among VCs (Ouimet, 2019)andcan
execute over 300k transactions per day (Hu et al., 2019). The outreach of Bitcoin can be
established through its international network of ATMs, which crossed the 1,600 mark
(Chowdhury, 2020).
However, according to estimates,US$2.5bn has been laundered via Bitcoin between 2009
and 2018 (Canellis, 2018). Approximately 46% of Bitcoin transactions facilitate illegal
activities, thus promoting black e-commerce (Foley et al.,2019) and other transnational
organised crimes such as money laundering (ML). For example, US authorities traced two
recent ML attempts through VCs, amounting to $2.8m in New York and $300m in Ohio
(Khatri, 2019:Petersen, 2020). These attempts help in understanding the gravity of the
matter.
Therefore, VCs are believed to be often used for ML and terrorism financing (TF)
(Keatinge et al.,2018:Teichmann, 2018). The criminal balance of VCs has risen from $3b in
2020 to $11b in 2021 (Chainanalysis, 2022a). The main reasons are that VCs’fictitious and
decentralised structure makes them exceptionally suitable for such criminal activities
(Haffke et al., 2020). Moreover,VC transactions do not require criminals to provide personal
and confidential information that can help identify an individual,unlike standard banking
transactions, thus making it easy to perform ML activities (Johari et al., 2020). Hence,
transactions of VCs undermine customer due diligence (CDD) procedures deployed by
regulated entitiesfor anti-ML (AML) and combating the financing of terrorism (CFT).
Although VC exchangers have CDD mechanisms in place but fail to implement them,
especially against over-the-counter transactions, thus providing opportunities to launderers
(Chainalysis, 2020),it is commonly believed that the Bitcoin transactionscould effectively be
mapped with 90% and above accuracy (Koshy et al.,2014). However, in a recent Chinese
scam, $3b was backtracked, but investigations lost track after the involvement of tumblers
(Dupuis and Gleason, 2020). The exact amount was later exchanged with fiat through
regular exchange. Thus,proving the inefficiency of current CDD practices for VCs.
Money launderers often use financial institutes (FIs) to disguise their dirty money,
frequently using opaque and multi-layered corporate structures. Several laws and
regulations to prevent and detect ML apply to banks and other FIs. However,other sectors,
especially the emerging FinTech and related models, are less regulated. Therefore, a dire
need to regulate VCs and associated services has emerged to strengthen the prevailing
global AML regimes. However, the ever-changing nature of VCs poses significant
challenges for regulators, investigators and FIs to cope with the technical developments
JMLC
27,2
396
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