Fiat Still Accounts for Majority of Financial Crimes, Says U.S. Treasury Report

Despite the many concerns of crypto being an instrument for crime, a newly published report by the U.S. Treasury Department says that fiat still accounts for the majority of financial crimes.

Earlier this month, the National Money Laundering Risk Assessment, by and through the U.S. Treasury Department, released three-yearly reports that went into deep discussions of money laundering.

The findings by the Treasury mention virtual currencies in detail, noting that the number of users and the market capitalization of digital assets have increased significantly since the previous risk assessment in 2018.

However, these Treasury reports revealed that fiat currency and traditional networks still account for more criminal flows than cryptocurrencies.

“The use of virtual assets for money laundering remains far below that of fiat currency and more traditional methods,” the U.S. Treasury shared.

Nevertheless, the use of virtual currency as payments for online drugs, laundering of criminal funds, and for sanctions evasion have increased. The recent U.S. Treasury report seems to fall in alignment with a recent Chainalysis crime report, which said that more funds were sent to criminal blockchain addresses in 2021 than any other year.

Counterintuitively, Chainalysis also found that the share of illegal money in crypto is only 0.15% of all transactions in 2021, dropping from 0.62% in 2020 and 3.37% in 2019.

More recently, following Russia’s invasion of Ukraine, western governments imposed stringent sanctions on Russia, but concern soon arose over the potential of individuals using cryptocurrency to evade sanctions.

P2P transactions and privacy coins complicate investigations

Fraudsters and money launderers are increasingly engaging in peer-to-peer (P2P) transactions to evade AML/CFT guardrails, choosing to manage their own cryptocurrency wallets instead of surrendering their cryptographic keys (important numbers that enable transactions to occur on the blockchain) to crypto exchanges.

The use of privacy coins like Monero hinders the efforts of law enforcement attempting to trace illicit flows, the report says. Criminals may also use crypto exchanges that employ mixers and tumblers to anonymize the source of funds.

Ransomware increased in pandemic

The COVID-19 pandemic ushered in a spate of ransomware attacks, where victims’ sensitive information is encrypted, and will only be decrypted upon payment of a ransom.

The ransom demanded is often denominated in cryptocurrencies, especially bitcoin. The funds are then routed through foreign cryptocurrency exchanges with few anti-money laundering measures before cashing out.

Ransomware attacks gained traction in 2020 when Chainalysis reported more than $406 million paid out to cryptocurrency trackers.

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