Do Bitcoin ATMs Make Money Laundering too Easy? Regulators Try to Keep up with Emerging Cryptocurrency Trend
V&E Government Investigations Update, July 24, 2019
Law enforcement agencies have warned that digital currencies, like Bitcoin, are easily used by criminals to launder the proceeds of illegal activities. In the past, buying and selling Bitcoin was technically complex, with limited opportunities for converting physical currency into digital currency without detection. With the recent advent of Bitcoin ATMs, however, converting ill-gotten cash into Bitcoin, or Bitcoin into cash, is now as convenient as visiting an ordinary ATM. More than 3,300 Bitcoin ATMs are in the United States, out of 5,000 worldwide.1 The machines are located primarily at gas stations and convenience stores.2
Similar to an ordinary ATM (automatic teller machine), Bitcoin ATMs allow Bitcoins and physical currency to be exchanged for one another. Unlike an ordinary ATM, however, no banks or bank-supplied debit cards are involved. Such transfers can be entirely anonymous, or if the ATM’s owner cares about complying with local laws, as anonymously as the local laws allow. Since Bitcoin works in a decentralized manner, there is no bank to track who owns a particular digital wallet or to track people sending or receiving cash.
Earlier this summer, the Spanish police announced that they disrupted a money laundering ring that had laundered the ill-gotten proceeds from other criminal gangs using Bitcoin ATMs and a phony cryptocurrency exchange business.3 According to Spain’s Civil Guard, the launderers obtained two Bitcoin ATMs from a trading platform and installed them in an office masquerading as a legitimate cryptocurrency-trading business. They then deposited more than €9 million (approximately $10.1 million) in cash into the ATMs in exchange for codes that could be used to claim an equivalent value in Bitcoins. Those codes were easily transmitted to drug traffickers in Colombia.
What This Means for You
Every day more businesses contemplate accepting Bitcoin (or other digital currencies) in exchange for goods or services. Other business are considering purchasing or hosting Bitcoin ATMs for the convenience of their customers. At the same time, Bitcoin and cryptocurrencies have, in fact, now grown into a “national security issue” according to U.S. Treasury Secretary Steven Mnuchin.4 According to Secretary Mnuchin, cryptocurrencies like Bitcoin have been used to support “billions of dollars of illicit activity like cybercrime, tax evasion, extortion, ransomware, illicit drugs, and human trafficking.”5
In recognition of the ease with which Bitcoin can be used for money laundering and other criminal purposes, the U.S. federal and state governments, E.U., and other authorities are attempting to more closely regulate cryptocurrencies. For example, in October 2018, the Financial Action Task Force (“FATF”) adopted
new global anti-money laundering standards aimed at cryptocurrencies. And, in May, a Commissioner of the Securities and Exchange Commission (“SEC”)
publicly acknowledged that the SEC needs to provide clearer guidance for cryptocurrencies. As such, while there can be a legitimate business rationale for supporting cryptocurrencies, any such involvement presents unique regulatory requirements and compliance risks that should be carefully considered.
Visit our website to learn more about V&E’s Government Investigations & White Collar Criminal Defense practice. For more information, please contact Vinson & Elkins lawyers Jennifer Freel or Brian Howard.
1 Coin ATM Rada, Bitcoin ATMs by Country, https://coinatmradar.com/countries/ (last accessed July 22, 2019).
2 In many locations Google will itself identify locations of nearby Bitcoin ATMs, or such locations can be searched online at websites like https://coinatmradar.com or https://www.coindesk.com/bitcoin-atm-map.
3 Europol, Cryptocurrency Laundering As A Service: Members of a Criminal Organisation Arrested in Spain (May 8, 2019), https://www.europol.europa.eu/newsroom/news/cryptocurrency-laundering-service-members-of-criminal-organisation-arrested-in-spain.
4 Press Release, U.S. Dep’t of Treasury, White House Press Briefing by Treasury Secretary Steven Mnuchin on Regulatory Issues Associated with Cryptocurrency (July 15, 2019), https://home.treasury.gov/news/press-releases/sm731.