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News Article

Money Laundering Using Crypto Exceeds Mexico City Budget

By Miriam Bello | Wed, 03/16/2022 - 10:20

Drug cartels in Mexico launder about US$25 billion a year using cryptocurrencies, said the UN’s Report of the International Narcotics Control Board for 2021. This is twice Mexico City’s Expenditure Budget for 2022, which is MX$234 billion (US$11 billion).

The traditional financial market has been disrupted by cryptocurrencies, big data analytics, decentralized payments, peer-to-peer platforms, electronic transfers and mobile access to financial services. These tools have changed the way people save and spend. While cryptocurrencies are not anonymous, as every single transaction is logged in the blockchain and some are publicly available, a number of services and techniques can enhance anonymity and hinder law enforcement investigations.

The pronounced changes to the market could be a double edge sword for poorly regulated markets. The poor regulation and difficult traceability of cryptocurrencies has attracted criminal activity. Academic research estimates that about 23 percent of transactions are associated with criminal activities, according to a report by Europol.

The illicit use of cryptocurrencies is predominantly associated with money laundering purposes, the trade of illicit goods and services and fraud. Specifically, the use of cryptocurrencies in money laundering schemes has been increasing and many criminal networks relied on cryptocurrencies as a payment medium during the COVID-19 pandemic, according to Europol.

Aware of the situation and handling the problem, in 2018, the government of Mexico enacted a law requiring all registered cryptocurrency trading platforms to report trades exceeding MX$56,000 (US$2,830). This, however, has not been enough to deter these actions.

In Mexico alone, Mexican cartels are believed to launder some US$25 billion a year, according to the UN’s report. To stay within the threshold for bank transactions and avoid setting off alarm bells, criminals often divide illicit money into small amounts that are deposited into multiple bank accounts, a technique known as smurfing. They then use those accounts to make a series of online purchases of small amounts of Bitcoin, allowing them to disguise the origin of the money and pay their associates in other parts of the world.

Policy makers and regulations, an insight by Bakertilly explained, can enforce three immediate actions to address money laundering through cryptocurrency:

  • Conducting anti-money laundering risk assessments, which should include an evaluation of customers, products, services and geography. “The risk assessment is usually the first thing the regulators ask for when something goes wrong and will illustrate the company’s general understanding of risk,” reads Bakertilly’s report.
  • Revamping customer due diligence because regulators will more likely than not expect companies to enhance their customer due diligence process to determine who could be using “fronts” or hiding behind shell companies.
  • Building a case for better resources and technology. The right compliance system must be equipped with the requisite capabilities and use the latest technology tools to monitor transactions and identify suspicious activities. Regulators should use the most sophisticated detection technology that they can afford and manage, says Bakertilly.
Miriam Bello Miriam Bello Senior Journalist and Industry Analyst