In a recent groundbreaking study, it has been revealed that despite longstanding assumptions, cash remains the preferred choice for criminal activities over cryptocurrencies. This study, shared by Fortune and backed by the Crypto Information Sharing and Analysis Center (CryptoISAC), challenges the prevailing narrative that digital assets are the primary tool for criminal organizations, such as Hamas, to facilitate illicit transactions.
The Enormous Scale of Traditional Financial Systems in Laundering Activities
The insightful study, titled “Blockchain’s Role in Mitigating Illicit Finance,” was crafted in partnership with Robert Whitaker, a former supervisory special agent with the Department of Homeland Security and current director of law enforcement affairs at Merkle Science. Whitaker emphasizes, “Cash will always be king because of its true anonymous nature.” This statement underscores the significant challenges faced by law enforcement when attempting to trace cash transactions, unlike those conducted on blockchain platforms.
Cryptocurrencies have long been perceived as hotbeds for illegal activities. This perception was fueled by notorious incidents such as the collapse of the Silk Road marketplace and the FTX debacle. However, data from CryptoISAC, along with blockchain analysis firm Chainalysis, suggests that this belief might be exaggerated. In 2023, a mere 0.34% of on-chain crypto transactions were flagged as potentially illicit, a noticeable decrease from the 0.42% recorded in 2022. In stark contrast, traditional financial systems (often referred to as TradFi) are responsible for laundering between 2% and 5% of global GDP each year, which translates to between $800 billion and $2 trillion.
Whitaker points out the stringent compliance requirements placed on US crypto exchanges, such as know-your-customer (KYC) and anti-money laundering (AML) regulations. These robust measures make blockchain transactions more traceable, acting as a deterrent for illicit activities. “It’s law enforcement-friendly in the sense that it has an immutable ledger behind it that is public,” Whitaker explained.
Advocating for Customized Regulatory Frameworks for Cryptocurrency
The report also sheds light on the notion that even stablecoins, often believed to be the go-to choice for crypto criminals due to their stability, rarely feature in illicit transactions. From July 2021 to June 2024, only 0.61% of transactions involving Tether’s USDT and a mere 0.22% of Circle’s USDC were flagged as potentially illegal.
The US Department of Treasury corroborates these findings in its 2024 money laundering risk assessment, asserting that “the use of virtual assets for money laundering remains far below that of fiat currency.” The report further emphasizes the necessity for international collaboration to counteract national security threats, especially since a significant portion of illegal digital asset activities takes place on offshore exchanges that fall outside US regulatory jurisdiction.
Whitaker passionately advocates for legislative solutions that are tailored to the unique characteristics of cryptocurrencies. He argues, “Quit trying to stuff crypto, a round peg in a square hole called fiat-currency regulation.” He urges policymakers to take decisive steps to regulate the crypto space effectively.
As concerns about national security issues, such as the financing of terrorist organizations and sanctions evasion, grow, Whitaker stresses the urgency of addressing these challenges. “The longer we take and ignore the problem, the more we allow illicit actors to benefit from this space,” he cautions.
