A Guide to Anti-Money Laundering for Crypto Firms
The ‘new normal’ is a term that’s been bandied about frequently as of late. But there’s nothing normal about a frozen economy. And there’s nothing normal about criminal behavior with COVID-19.
Criminal Behavior and COVID-19 Move Together
Adapting to an economic model that is heavily reliant on digital has proven to be a difficult task. For both legitimate and illegitimate businesses. Deals have been put on hold and cash is no longer as powerful as it once was now that payments are moving towards digital at speed.
All types of behavior have changed, that’s no secret. Even with a return to work taking place in some regions, consumer behavior is not expected to bounce back to pre-COVID-19 levels. In financial crime, we’ve seen a move towards cybercrime. Phishing attacks, fraud and various scams have all been increasing lately.
But it’s not just falling for a well-designed attack that’s at play for criminal behavior with COVID-19. Money muling is on the rise, millions have suddenly become unemployed with stimulus checks that do little to cover cost of living. The faux-work that money muling programs often employ is key to preventing ‘employees’ from becoming aware that they’re involved in criminal activity and whistleblowing to authorities.
Criminal behavior is all about innovation and adaptation. And criminal behavior in the COVID-19 crisis has changed in interesting ways. As our CEO, Charlie Delingpole recently said in an interview: “If you’re a drug dealer, you’re going to stop selling ecstasy and party drugs right now and sell more marijuana and then you will also want to give bulk discounts and change your supply chain.”
New economic climates make for new supply-chain issues. And that’s guaranteed to change criminal behavior during COVID-19 in particular.
This has made for some sensationalist headlines. Criminal cartels in Mexico are struggling to create synthetic opioids like fentanyl due to an inability to access the Chinese markets that provide the precursor materials. And when supplies are low it means two things, prices skyrocket and some criminals will need to become more creative.
Criminal behavior has long been codependent. As John Byrne, Vice-Chairman of AML Righsource, puts it: “Organized crime and terrorism groups are increasingly relying on each other to create troubling, synergistic outcomes.”
And this extends beyond organized crime and terrorist groups. Different criminal organizations often rely on one another, especially committing crimes at scale or laundering money at scale. We recently discussed how British drug gangs had their money laundered via gold siphoned through Dubai by a French money laundering group.
In the favelas of Rio, gangs have put communities on lockdown. It’s framed by the gangs as a supposedly noble response to governmental indifference, but it also serves as a pretext to give the gangs complete run of those communities and enact criminal martial law. Leaving the gangs free to conduct whatever business they wish with impunity and preventing locals from working legitimately.
Money muling has been on the rise since lockdown orders were put in place across the world. Criminal behavior was accelerated by COVID-19 in this instance rather than materially changed by it. And now there is a vast pool of applicants for money muling jobs. These jobs rarely appear to be illegitimate from the outside, Vasty Health Care Foundation was one such enterprise that appeared legitimate and asked ‘employees’ to perform small tasks to lend credence to the illusion of work.
The crux of the muling comes after that when the mules are asked to process payments through their accounts. Their investment of time and energy plus a promised payout means there’s very little resistance from the people who have been used to mule illicit cash.
Intelligent criminal enterprises have long used digital methods to process money. Many more criminals may look to take digital payments and crypto for criminal retail goods.
Cryptocurrencies like bitcoin and privacy coins like Dash provide an array of routes for money to travel. The wider range of mule accounts available means that placement of the funds should be easier than usual. But it’s still a risky decision for any criminal.
New Risk Means New Rules
Reducing the risk will be difficult right now. High velocity financial activity is always sure to draw attention from compliance officers, but it will look more bizarre now than it ever has. Criminals would need to move funds from those muled accounts without an obvious rhythm and in non-round figure amount to avoid the most obvious transaction monitoring methods. At a basic level, this criminal behavior during COVID-19 is something that every compliance team should be looking for at the moment.
Peer-to-peer payments have already seen an increase in demand due to the current environment. And should see a corresponding increase in scrutiny. Especially where single retail accounts are paying funds into a small number of other retail or SME accounts that were opened around the time lockdown began – this could be indicative of a replacement of buying drugs on the street or in bars for example.
From there it’s a matter of investigation. Alerts from those transactions should be examined for reasonability — is it typical for a number of Wall Street stockbrokers to be paying occasional amounts of $200 into the account of someone with ties to Colombia living in Downtown Brooklyn?
Criminal behavior will change at speed and always moves faster than transaction monitoring rules can. But if you can predict and adapt to their behavior then you can implement rulesets that will force them to spend on changing methods or catch them outright. For that, a configurable rules engine that lets you adapt your transaction monitoring rulesets is essential.
Originally published May 7, 2020, updated November 17, 2021
Disclaimer: This is for general information only. The information presented does not constitute legal advice. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information.
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