Europol meets cryptocurrency exchanges to thwart criminals

Europol is meeting more than a dozen major cryptocurrency exchanges this week to assess ways to crack down on the use of digital assets for money laundering, as concern mounts over the criminal exploitation of the nascent technology.

The EU’s law enforcement agency began a three-day conference on digital currencies and cyber crime on Tuesday with around 16 cryptocurrency exchanges, payment processors and digital wallet providers as well as authorities from a number of EU countries.

A spokesperson for Europol told the Financial Times that attendees at the event in The Hague would discuss “the abuse of virtual currencies for illegal activities”, and ways to “enhance the capabilities of law enforcement”.

The conference comes months after Rob Wainwright, the agency’s director at the time, warned that around 3 to 4 per cent of £100bn in illicit proceeds in Europe were laundered through cryptocurrencies, and expressed worry that this proportion was growing “quite quickly”.

Cryptocurrencies are not regulated by central banks but are held digitally via electronic identities that in many cases allow the owners to remain anonymous. As a result, they have been linked to payments for prohibited goods such as guns and drugs, as well as terrorism financing.

Soaring cryptocurrency prices towards the end of last year have also made the freewheeling market a lucrative target for hackers.

Europol said on Tuesday that the conference would focus on the “tracing and attribution” of digital coins, as well as ways to counteract services that make it easier to disguise where a cryptocurrency might have come from.

Unlike in the regular banking system, there is also no way for authorities to freeze digital assets that have been identified as stolen or linked to criminal activities, known as “tainted” funds.

However transactions for most cryptocurrencies are logged on public ledgers, meaning the movement of funds can typically be tracked until they are cashed out into fiat currencies.

Some observers argue that authorities such as Europol should devise a centralised system that flags cryptocurrency wallets linked to nefarious activities to major exchanges, so that they can block the owners from exchanging those funds for hard cash.

Others note that the market has already started to impose vigilante-style self-regulation.

Eric Demuth, co-founder and chief executive of Vienna-based exchange Bitpanda, said larger exchanges were already monitoring the movement of “tainted” funds via a small number of third-party specialists that have become increasingly sophisticated in recent years.

“You have a bird’s-eye view from above so you can see every transaction ever done,” he said. “Every exchange has it, it’s a no brainer. People trying to launder money with bitcoin are three years too late.”

Many of the biggest crypto exchanges say they have strengthened their due diligence processes, including “know your customer” and anti-money-laundering checks.

But on Tuesday, Japan’s Financial Services Agency issued so-called “business improvement orders” to several cryptocurrency exchanges registered in the country, including top 30 exchange bitFlyer, claiming their anti-money-laundering processes were not robust enough.

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