A recent study found that despite the long-held belief that crypto assets facilitate criminal activity, perpetrators still overwhelmingly prefer cash for their illicit transactions.
This revelation, published by Fortune and sourced from the Crypto Information Sharing and Analysis Center (CryptoISAC), challenges the narrative that digital assets are the first choice of criminal organizations such as Hamas.
TradFi systems expected to launder up to $2 trillion annually
The study, titled “The Role of Blockchain in Mitigating Illicit Financing,” was developed in collaboration with Robert Whitaker, director of law enforcement at Merkle Science and former supervisory special agent at the Department of Homeland Security.
According to Whitaker, “cash will always be king because of its true anonymous nature,” highlighting the difficulties law enforcement faces when it comes to tracing cash transactions versus those made on the land. blockchain.
For years, cryptocurrencies have been seen as a breeding ground for illicit activity, particularly following high-profile incidents such as the collapse of FTX and the Silk Road market. However, data from CryptoISAC and blockchain analytics firm Chainalysis suggests this perception may be skewed.
Report says only 0.34% of total on-chain cryptocurrencies trading volumes were flagged as potentially illicit in 2023, down from 0.42% in 2022. In contrast, traditional financial systems (TradFi) are estimated to launder between 2% and 5% of global GDP per year, the equivalent of $800 billion to $2 trillion.
Whitaker emphasized that US crypto exchanges must adhere to strict compliance measures, including know your customer (KYC) and anti-money laundering (AML).
These requirements make it much easier to trace transactions on the blockchain, which can deter criminals. “It is favorable to the application of the law in the sense that it relies on an immutable and public register,” he explained.
Whitaker calls for tailored regulation for crypto
The report also highlights that even stablecoins, often considered favored by crypto criminals due to their stability, are rarely involved in illicit transactions. Between July 2021 and June 2024, only 0.61% of transactions involving Tether’s USDT and 0.22% of Circle’s USDC were flagged as potentially illicit.
The U.S. Department of the Treasury supports these findings, saying in its 2024 Money Laundering Risk Assessment that “the use of virtual assets for money laundering remains well below that of fiat currency.”
The report also highlights the need for international cooperation to combat national security threats, especially since much of the illegal digital asset activity occurs on offshore exchanges outside the United States. United. American regulations.
Whitaker advocates for tailored legislative solutions that address the unique aspects of cryptocurrencies, saying: “Stop trying to stuff crypto into a round peg in a square hole called fiat currency regulation. » He urges policymakers to take decisive action to effectively regulate space.
As concerns over national security issues, such as the financing of terrorist organizations and sanctions evasion, continue to grow, Whitaker emphasizes the urgency of addressing these challenges. “The longer we delay ignoring the problem, the more we allow illicit actors to benefit from this space,” he warns.
Featured image of DALL-E, chart by TradingView.com
