Regulation
Crypto-assets, terrorist financing, money laundering and regulations: the state of play
Crypto-assets, terrorist financing, money laundering and regulations: the state of play
Many continue to question the possibility of a link between illicit transactions, terrorist financing and money laundering, but the numbers speak for themselves.
In 2022, the use of cryptocurrencies for illicit transactions was estimated at over $20 billion.
There are two schools of thought: those who believe in traceability thanks to blockchain and the realists who know that even the most sophisticated systems can be hacked, that criminals are always one step ahead of legislators and that the smell of money attracts all types of scammers and scammers.
According to cryptocurrency trading simulator Crypto Parrot, the number of new crypto-assets increased by 68.75% between September 2020 and September 2021 and by 28% between 2023 and 2024.
The debates on Bitcoin – and on crypto-assets more generally – have their roots in the discomfort felt by financial circuits and traditional regulators. The heated discussions on this topic are therefore destined to continue for some time to come.
The untraceable nature of cryptocurrencies makes them an ideal tool for cybercrime activities such as drug dealing, child pornography and terrorist financing. Cryptocurrencies are indeed ubiquitous on the darknet, where they facilitate untraceable payments for cybercrimes.
The Financial Action Task Force on Money Laundering believes that the most significant money laundering and terrorist financing risks involve conversion interfaces between cryptocurrencies and fiat money, underlining the need to regulate these exchanges and other conversion intermediaries that facilitate money laundering.
In 2018, the Banque de France published a note titled “The emergence of Bitcoin and other crypto-assets: problems, risks and prospects”, which stated that “regulation of crypto-asset activities must be recommended for four main reasons”. These are: the fight against money laundering and terrorist financing, which is of the highest priority; investor protection; maintain market integrity in light of cyber risk; and finally, whether these businesses continue to develop, financial stability concerns.
In short, the Banque de France and the French Prudential Supervision and Resolution Authority support broader supervision of services associated with crypto-assets in order to regulate the services provided at the interface between the real world and crypto-assets and monitor the investments in crypto-assets. resources. The position of the French authorities is therefore equivalent to integrating and regulating crypto-assets rather than banning them.
Europe recently introduced the Cryptocurrency Markets Regulation, which will establish a legal framework for Bitcoin in all member states from the end of 2024.
Previously, in response to the ever-increasing role of cryptocurrencies in cybercrime, the European Parliament adopted its first piece of legislation to track transfers of crypto-assets such as Bitcoin and e-money tokens in April 2023.
The legislation, provisionally agreed by negotiators in June 2022, “aims to ensure that cryptocurrency transfers, as is the case with any other financial transaction, can always be traced and suspicious transactions blocked,” according to a European Parliament press release.
This regulation deals with transparency, disclosure, authorization and supervision of transactions.
In February, the US Department of Justice announced charges of terrorism, sanctions evasion, fraud and money laundering against seven key figures in an oil laundering network linked to the Iranian government, which is a major supplier of oil to China, Russia and Syria.
The circumvention of these charges and embargoes has been facilitated, at least in part, through the use of crypto-assets.
Iran has enthusiastically embraced cryptocurrency mining, occasionally exceeding its national energy capacity and leading to the temporary shutdown of mining operations.
This is what caught the attention of Senator Elizabeth Warren of Massachusetts, a cryptocurrency expert and vocal critic of the widespread use of Bitcoin in the United States. She addressed the issue with a bill known as the “Digital Asset Anti-Money Laundering Act” in December 2023, designed to crack down on the use of cryptocurrencies in the United States.
In a letter to the Department of Defense and Treasury in May, Warren highlighted the risks of legalizing cryptocurrency mining in Iran. This practice allowed the transfer of large funds to finance both the country’s administration and Hamas.
In fact, Hamas has had some of its members’ accounts frozen by the Israeli government on the Binance platform, currently the world’s leading crypto platform. According to the Wall Street Journal, Hamas amassed more than $41 million in cryptocurrencies between August 2021 and June 2023.
According to a 2021 Iranian report, the Tehran government could generate $2 million per day and $700 million per year in direct revenue from cryptocurrencies.
There is an old Arab saying that you should chase a thief to the door of his house. And it is no surprise that when we pursue Iranian crypto-assets, we arrive at the doorstep of Hamas, in Yemen, Lebanon and elsewhere.
Lawmakers will continue to address the issue of regulating crypto-assets, which remains a political issue.
How can a country like the United States position itself as a global hub for cryptocurrencies, while protecting itself from their abuse and exploitation? How can it regulate extremely high volumes and at the same time support unfettered capitalism?
The issue is undeniably political, but it remains intriguing. However, idealists must step aside for pragmatists and political realism.
In any case, they will have the merit of having sparked the debate, even if they have not yet found a way to carry it forward.
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Nathalie Goulet is a French senator from the Orne department in Normandy and the author of “An ABC of Terrorist Financing”, published by Cherche-Midi. X: @senateur61
Disclaimer: The opinions expressed by the authors of this section are their own and do not necessarily reflect the views of Arab News