Money Laundering in Digital Currencies

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Money laundering is the process of disguising the original ownership and control the proceeds of a criminal activity by making such proceeds appear to have been derived from a legitimate source. It occurs in three stages; placement, layering and integration. Placement is where the illegally obtained cash is introduced into the financial system. Layering is the second stage and it involves carrying out of complex financial transactions to disguise the original illegal source. The final stage is integration and it is where the laundered money is re-introduced into the economy and wealth is acquired from the transactions carried out by the illicit funds.

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Digital currency exchangers are businesses that allow their customers to trade digital currencies for other assets and they have facilitated money laundering in a number of ways. First of all, the digital currency accounts are obtained anonymously with the customer not subjected to identification procedures like traditional bank accounts. Money launderers can take advantage of this and open several currency accounts as often as after each illegal transaction they carry out. The anonymity of these accounts makes it difficult or impossible for the money to be traced back to an individual (Richet). Digital currency accounts can also be funded anonymously with the degree of anonymity varying depending on the method used. The methods include mail, over the internet, using Electronic Money Orders, cheques and online banking transfers. Money launderers hence are able to deposit the money anonymously without it being linked back to them.

Digital currency issuers impose no limits to the total amount that one can have in balances, transfer or withdraw. This provides a favorable environment for money launderers to operate. It allows them to launder large sums of money using few transactions. Payment in digital currencies has also enabled traffickers to launder funds that cannot be placed in traditional financial systems and the imposition of no limit on transfer makes payment for illegal services easier. The illicit funds can be layered into the exchangers until its able to be re-integrated into the legitimate economy.

Some issuers of the digital exchange services allow its users to redeem their account balances in actual precious metals. Money launderers can their for exploit this opportunity and carry out business in precious metals or buy the precious metals without the paper trail created by the commodities market. The exchangers can also convert the digital currency balances into anonymous prepaid cards. These cards can be used to withdraw the funds at ATMs worldwide which make it easy for money launderers to access the money anywhere and at anytime (Substantiation money laundering Digital Currencies).

In conclusion digital exchange has enabled money laundering in a number of different ways mostly through the provision of anonymity. The use of the internet to carry out these transactions has further enabled laundering as one is able to anonymize his proxy address or use public internet connections making it difficult for the transaction to be traced back to him or her. Digital exchange has broken the trend of physical government backed currencies to carry out transactions. The increasing spread of technology worldwide is also working to further enable the use of digital exchange to launder money worldwide.


Substantiation Money Laundering in Digital Currencies. U.S Department of Justice. N.p., June 2008. Web.21 Apr. 2015.

Richet, Jean-Loup. Laundering money online. A review of cyber criminal methods (2013): n. pag. Web. 21 Apr. 2015.

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