Global Financial System Launders $800 bln Per Year, But FATF Considers Crypto To Be A Threat
In light of the burning reputation of traditional financial institutions in terms of money laundering, the long-awaited will of Financial Action Task Force (FATF) to establish the first set of guiding principles looks a bit preposterous. Money-laundering watchdog announced setting up the cryptocurrency rules by summer of next year, according to Reuters. “By June, we will issue additional instructions on the standards and how we expect them to be enforced,” said Marshall BILLINGSLEA, president of FATF, adding that participating countries will be strictly inspected for the compliance to the regulatory guidelines of the entity. In his words, the countries not adhering to the rules will face severe penalties: their access to the global financial market restricted, with further blacklisting.
The absurdity of the statements lies in the fact that at that very time the situation with the banking institutions money-laundering cases has already seen great development, striking the market with more and more shocking news. Can these two ways of developments be connected or intersect somehow with each other? For quite a long time FATF experienced pressure from governments to start taking actions in unifying regulation of the cryptocurrency industry on a global level. Perhaps, the negative news from traditional sector forced the entity to act faster, in order to create an image and send a kind of a signal that “we’re doing good, we’re aware of the events, our work is sufficient.” But did FATF really establish its agenda priorities properly?
The confusion behind that “Anti Money Laundering” actions
The current events clearly show us that the approach of authorities and responsible persons to AML guidelines are meaningless. The situation with Danske Bank demonstrates the monstrous lack of responsibility and ignorance on all levels. There is also another part of it, however — the corruptive nature, but this incident needs careful further study before making any conclusions. All in all, we observe the failure of the current AML system as a whole. The more awkward is the global Task Force concerns about the cryptocurrencies, about the criminal efforts to launder money exactly through them to be one of the great threats to consider right now.
“AML is the term introduced by centralized systems and its definition is restrictive for people now, not for major players within centralized systems — it kills or slows down the human progress,” expresses his opinion Mukhtar MUSSABETOV, the founder at BlockSpace Labs (University of Nicosia). “The problem is that centralized systems are not transparent or accountable at a much bigger scale, they don't want us to know how much money has been laundered through fiat systems, including corruption, drug trafficking, etc,” he concluded. The current AML in centralized financial world obviously compromised itself, and it didn’t happen just yesterday. If we dig deeper into the topic, we can find out quite conflicting facts about the traditional and crypto market money laundering issues.
Between $800 bln and $2 trn, or 2-5% of global GDP, is washed annually, estimates the United Nations Office on Drugs and Crime. There are a huge variety of ways to avoid law right now, so why cryptocurrency is considered so threatening? What is the exact share of money laundered through crypto from the estimated total volumes?
Let’s refer to CipherTrace, the Q3 2018 report claims that 97% of all direct bitcoin payments from identifiable criminal sources were received by unregulated cryptocurrency exchanges, while 95% of outgoing payments that were traceable to criminals were made from them as well. Cryptocurrency money laundering on exchanges involves a significant amount of bitcoin — some 380,000 bitcoins or approximately $2.5 billion. The key takeaway from the report can be that 36 times more criminal bitcoin is received by cryptocurrency exchanges in countries where AML is either weak or not enforced. Sounds a good reason for Task Forces to haste with the regulations and impose AML, KYC, CTF and other strict abbreviations on all entities connected to cryptocurrencies.
But if we take the volume of $2.5 bln of crypto-laundered funds and compare them to the total of $800 bln — it’s not even a half-percent. The fact of proportions of suspected money laundering cases involving cryptocurrency can be reaffirmed by Nikkei in Japan. According to their study, the large majority of “washing” cases in 2017 came from banks and other financial institutions, totaling approximately 347,000 cases. Crypto laundering cases? 669 counted.
“From a moral perspective, centralized systems can't act as judges for cryptomarket. Just look at what happened with $110 bln Western Aid to Afghanistan over 7 years, or how UK turns a blind eye on dirty money coming from around the world into their economy. Or the latest Pentagon audit scandal? I can go on and on. Crypto market is at an early stage and it's like blaming a baby for an unsafe walk while taking the very first steps. I believe in crypto market self-regulation, and we need more time to overcome these developmental diseases,” says Mukhtar MUSSABETOV.
The real problems are on a larger scale than controlling cryptocurrencies
So, according to their developments, FATF will require cryptocurrency exchanges and crypto wallet firms across the globe to become licensed and regulated in order to oppose attempts to launder money using cryptocurrencies. Initial coin offerings will be subject to the same governing policies the Task Force is working on.
Ironically, FATF is going to tighten its grip on a technology which was initially meant to make the financial sector more transparent and help in thwarting corruption and money launderings. “Crypto assets have the ability to reduce the probability and risk of money laundering, but only if there is solid Know Your Customer and Customer Identification Data associated with each and every wallet,” Charles CHRISTOFILIS, the General Counsel and Chief Compliance Officer, describes the possible developments in the sphere. “Eventually BTC or another blockchain-based solution could potentially win the war on cash and reduce or eliminate the potential for money laundering or terrorist financing. Right now crypto has a terrible reputation with the established financial industry and with most regulators. Ultimately, the financial institutions and governments will have to embrace crypto unless a more reliable and transparent technology than blockchain emerges.”