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Europol meets cryptocurrency exchanges to thwart criminals

Posted on 25 June 2018

Europol meets cryptocurrency exchanges to thwart criminals

In The Hague last week, Europol held meetings with a significant number of prominent cryptocurrency exchanges, payment processors and digital wallet providers to consider how to combat the use of digital assets for money laundering and widespread criminal activity.

Europol told the press that the focus of the meeting was to discuss how law enforcement could be given more assistance to fight the abuse of digital curre0ncies by criminals. Europol have estimated that around £3-4 billion in illicit proceeds in Europe were laundered through cryptocurrencies.

There are a number of reasons why cryptocurrencies have been targeted by criminals to launder monies. An obvious but important point is that cryptocurrencies are not regulated by central banks but are supported by digital signatures, which in many cases allow the individuals to remain anonymous. This combination has resulted in cryptocurrencies being used to finance terrorism or the purchase of banned items such as guns and drugs.   

At the conference, Europol announced that it was especially interested in the “tracing and attribution” of digital coins and in countering services designed to disguise where a cryptocurrency might have come from. In the conventional banking system, there are methods which the state can employ to freeze or restrict "tainted" assets or those suspected to be criminal property. Currently, it is not possible for digital assets to be frozen in this way.

There is some irony that cryptocurrencies have this unaccountability on the basis that most are logged on public ledgers and so all fund flows can be tracked and followed until the point of potential conversion into traditional "fiat" currencies.

To try and address some of the difficulties that law enforcement have currently with cryptocurrencies, some have suggested that Europol should build a centralised system to flag cryptocurrency wallets linked to criminal activity. Those in favour of this suggestion have noted that with the help of blockchain analysis firms (of which there are many in number), it would not be difficult to build such a tool.

Some individuals operating in the cryptocurrency space have explained that the market has already begun to self-regulate with prominent exchanges monitoring the flow of alleged "tainted" funds via external tracing specialists. Some exchanges have also stated that due diligence processes and anti-money laundering checks on users have been bolstered.

There is obviously still a way to go- Japan's Financial Services Agency issued "business improvement orders" to several Japanese registered cryptocurrency exchanges last week, claiming that their anti-money laundering efforts were unsatisfactory- but perhaps this development with Europol suggests that governments agencies and the exchanges themselves can work together to legitimise the cryptocurrency once and for all.

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