Why in News?
- The Enforcement Directorate uncovered a ₹260 crore international cyber‑fraud case in which criminals laundered money through cryptocurrencies and hawala channels.
- This case demonstrates how digital currencies are being misused for financial crimes.
What Is Crypto‑Based Money Laundering?
- Money launderers convert illicit cash into digital tokens like Bitcoin, Monero or stablecoins to disguise the origin of funds.
- Cryptocurrencies allow high‑speed, low‑cost and cross‑border transfers without strict identity checks.
- Decentralised exchanges and privacy‑focused coins make it difficult for regulators to track transactions.
Stages of Laundering
- Placement: Criminals use stolen or unaccounted cash to purchase cryptocurrencies through unregulated exchanges. Shell accounts and poor know‑your‑customer processes help them remain anonymous.
- Layering: The purchased crypto is split across thousands of wallets. Funds are passed through mixers and exchanged for privacy coins such as Monero or Zcash. Some criminals use gambling sites, non‑fungible token (NFT) marketplaces and peer‑to‑peer networks to confuse the trail.
- Integration: Laundered coins are converted back into conventional currency via crypto ATMs or high‑risk exchanges. They may also be used to purchase real estate, luxury goods or invested in shell companies, making the money appear legitimate.
Why Is Crypto Laundering Difficult to Control?
- Weak compliance: Many exchanges do not enforce strict know‑your‑customer or anti‑money‑laundering rules.
- Privacy tools: Mixers and privacy coins can hide transaction histories and wallet identities.
- Regulatory divergence: Countries vary widely in how they regulate digital currencies, creating loopholes for criminals.
- Low conviction rates: In India, very few money‑laundering cases involving crypto have resulted in convictions.
- Unmonitored cash‑out facilities: Crypto ATMs and peer‑to‑peer platforms allow direct conversion between cash and digital assets without oversight.
Policy Suggestions
- Strengthen anti‑money‑laundering laws to explicitly cover cryptocurrency offences.
- Coordinate globally by aligning regulations with Financial Action Task Force standards and bilateral tax treaties.
- Use artificial‑intelligence‑driven blockchain analytics to detect suspicious patterns in real time.
- Mandate strict KYC for all exchanges and wallets.
- Bring mixers and privacy coins under legal supervision and require audit trails.
Conclusion
Cryptocurrencies have enormous potential for innovation but can also enable crime if left unregulated. A balanced approach—combining robust law enforcement with supportive policies for legitimate innovation—can ensure that digital assets contribute to economic growth without undermining financial integrity.