Money Laundering in the New Age of Virtual Currency
“Money laundering is the process by which one conceals the existence of illegal source, or illegal application of income, and then disguises income to make it appear legitimate”. By the 1970’s, criminal organizations and more specifically, the drug trade began to make profits that attracted the attention of Congress. In 1999, it was estimated that drug trafficking alone produced approximately $48 billion in profits per year to be laundered in U.S. Dollars. These profits could no longer go unnoticed by drug dealers spending it on daily activities such as food, clothes, and entertainment. From a pure logistics standpoint, $48 ...view middle of the document...
As noted before drug trafficking accounts for a large size of the laundered money but other common types include embezzlers, corrupt politicians, and terrorists.
Part I of this paper will develop the Legislation that came into existence during the 1970’s and the 1980’s in an attempt to prevent and prosecute money laundering as a federal crime. Procedural safeguards were put in place to question the movement of large amounts of cash. They did not make having large amounts of cash illegal, but they did force financial institutions to ask questions and file reports about the source of such income. Congress recognized that certain banks and business engaged in the money market services are in the best position to identify unusual and suspicious transactions. By placing liability on such business, they hoped to incentivize the financial industry to self-regulate and find effective methods of detecting money laundering attempts.
Part II of this paper will explore the emergence of a new type of payment system and the current potential that it provides for those looking to launder money. Virtual Currency or Electronic Cash (E-Cash) is unique because the most popular forms today are not under any government protection or support. Bitcoin is the leading example and it has also been at the forefront of recent money laundering attempts. Bitcoin offers a discrete and efficient way to transact with strangers through the Internet. Although it Bitcoin has the potential to positively impact a variety of legitimate businesses, the anonymity of the transaction entices those dealing in illegal transactions. The online drug marketplace known as the Silk Road only allowed Bitcoin as a form of payment. In response to Bitcoin’s rapid growth, both the IRS and the Treasury Department have issued notices on what regulations and reporting requirements should apply. These notices provide some response to the immediate concern that Bitcoin has created. However many questions still remain unanswered and the potential to launder money is far from eliminated.
Part III of this paper will focus on recent money laundering scandals in the Bitcoin environment. As Bitcoin has grown in popularity, it has created money laundering concerns that threaten its very existence. The current E-Cash environment is somewhat reminiscent of the explosion of the online music Industry. When Napster emerged, it was clear that it had potential to completely change the music experience and yet it was unable to survive due to numerous copyright infringement lawsuits. I-Tunes learned from this mistake, and worked with artists and music labels to provide for a regulated online music experience. Much like Napster, Bitcoin will most likely be subject to a high degree of scrutiny and numerous lawsuits in the years to come. These lawsuits may end up destroying or crippling Bitcoin’s current existence. Yet even if Bitcoin is destroyed, it seems probable that another product will emerge that can incorporate...