Follow the money trail in an investigation of the crime, and more often than not you will solve the crime. Money is one of the biggest motivators of crime. From drug cartels to human trafficking, money is the primary incentive for a criminal enterprise to engage in crime. It has been estimated that 1.6 trillion dollars are laundered in one year.

The purpose of money laundering is to take illicit proceeds and make it look like it has been derived through legitimate means, thus converting it into taxable income. That’s right, criminals try to make their untaxed money taxable. This is what leads criminal organizations to owning stores as fronts, thus “layering” its illegal proceeds in with legitimate transactions. different stores acting as fronts. In the advent of the digital age crimes have become more sophisticated and so too, must law enforcement. While trucks filled with money used to be the vehicle, literally, of transporting illicit proceeds. More recently newer and more sophisticated vehicles have been employed to launder money.

On the horizon, bitcoin, a virtual currency, is going to create numerous legal issues. One challenge law enforcement, prosecutors, and the courts will be faced with, which we have already seen start to develop, is that they must become familiar with these complex concepts. Bitcoins are held in something commonly referred to as a wallet. The wallet has two things: (1) an address and (2) a private key. The address is like your account identification number, while your private key is like a complex pin number. When a person makes a transaction using bitcoin, something called the Blockchain records this and posts it on blockchain.info. Law enforcement,typically, have been able to use the info posted on the Blockchain to tie a suspect to laundering activity.

In order to prove that money laundering took place, police and prosecutors need to tie the suspect to the bitcoin wallet. This is hard enough, but now something called a “Dark Wallet,” which is starting to emerge, will make it much harder, if not impossible, to tie the suspect to the wallet. This “money laundering software,” essentially combines transactions made at similar times into showing on the blockchain as one movement of funds. This is one obstacle the government will need to take seriously in the coming years.

Typically, in order to convert your cash into bitcoins you will need to go to an exchange. While there are numerous licensed bitcoin exchanges out there, such as Coinbase, there are unlicensed ones out there as well. These unlicensed exchanges do not abide by the FinCEN reporting requirements. Typically financial institutions and money transmitter services have to fill out a Currency Transaction Report (“CTR”) form if more than $10,000 is being deposited or transmitted. There has been some criminal prosecution, such as United States v Faiella, for the operator’s of these unlicensed exchanges. I am sure that we will start to see many more cases come forward in the coming years as these types of cases are prosecuted.

Keep an eye out for the coming bitcoin abuse prosecutions in the future!

William Roberts

One Response to Crime, Money Laundering, and Bitcoin?

  1. Jackson says:

    Fascinating. This discussion reminded me a lot of what people call the “dark web,” where people can barter for all kinds of illicit things. And, I wouldn’t be surprised if some of these concepts overlap. For all of its usefulness, it is incredible the entire world of potential abuses the internet can create.

    What we truly need (but maybe don’t deserve?) is a hero, someone (maybe in the FBI?) who can crack down on things like this. But, it will likely take more than one ordinary man to compete with all types of hackers and those comfortable operating in this sphere. We will see where the future leads, and hopefully its towards a more honest and reputable society.