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Virtual money laundering: policy implications of the proliferation in the illicit use of cryptocurrency

Author

Listed:
  • Christian Leuprecht
  • Caitlyn Jenkins
  • Rhianna Hamilton

Abstract

Purpose - This study aims to explain how cryptocurrency is leveraged for illicit purposes across the global financial system. Specifically, it establishes how cryptocurrency has been changing the nature of transnational and domestic money laundering (ML). It then assesses the effectiveness of conventional anti-money laundering (AML) policy and legislation against the proliferation of crypto laundering, using Canada as a critical case study. Design/methodology/approach - Data was collected from court cases and secondary sources to build cross-case trends of cryptocurrency use in ML. Illicit International Political Economy forms the theoretical foundation for this study, whose contribution is situated in the current literature on crypto-ML. Findings - This study finds that Bitcoin is common among crypto-money launderers, though most also use some form of alt-coin, and that the use of third-party currency exchanges is a prevalent method to create illicit funds and conceal proceeds of crime. The findings validate two hypotheses that illicit use of crypto is prevalent in the first two stages of ML, and that crypto is most often used in conjunction with other fiat currencies. Although law enforcement is improving on monitoring and understanding popular cryptocurrencies such as Bitcoin, alt-coins pose a significant challenge for criminal intelligence. New regulations for third-party currency exchanges are having a positive impact on curtailing crypto-laundering but are shown to be insufficient per se to contain the use of crypto in criminal activity. Originality/value - This study contributes to a more robust understanding of the use of virtual currency in transnational and domestic ML. It contributes to an emerging body of literature on the role of technological change in enabling the global flow of illicit funds. It also informs public policy on virtual currency in general, and on AML regulation in Canada in particular.

Suggested Citation

  • Christian Leuprecht & Caitlyn Jenkins & Rhianna Hamilton, 2022. "Virtual money laundering: policy implications of the proliferation in the illicit use of cryptocurrency," Journal of Financial Crime, Emerald Group Publishing Limited, vol. 30(4), pages 1036-1054, September.
    • Handle: RePEc:eme:jfcpps:jfc-07-2022-0161
    DOI: 10.1108/JFC-07-2022-0161
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    References listed on IDEAS

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    1. Sean Foley & Jonathan R Karlsen & Tālis J Putniņš, 2019. "Sex, Drugs, and Bitcoin: How Much Illegal Activity Is Financed through Cryptocurrencies?," The Review of Financial Studies, Society for Financial Studies, vol. 32(5), pages 1798-1853.
    2. Raffaella Barone & Donato Masciandaro, 2011. "Organized crime, money laundering and legal economy: theory and simulations," European Journal of Law and Economics, Springer, vol. 32(1), pages 115-142, August.
    3. Tim Legrand & Christian Leuprecht, 2021. "Securing cross-border collaboration: transgovernmental enforcement networks, organized crime and illicit international political economy [A tale of two borders: The US-Canada and US-Mexico lines af," Policy and Society, Darryl S. Jarvis and M. Ramesh, vol. 40(4), pages 565-586.
    4. Chad Albrecht & Kristopher McKay Duffin & Steven Hawkins & Victor Manuel Morales Rocha, 2019. "The use of cryptocurrencies in the money laundering process," Journal of Money Laundering Control, Emerald Group Publishing Limited, vol. 22(2), pages 210-216, May.
    5. Valeriia Dyntu & Oleh Dykyi, 2018. "Cryptocurrency In The System Of Money Laundering," Baltic Journal of Economic Studies, Publishing house "Baltija Publishing", vol. 4(5).
    6. Shamil Shovkhalov & Hussein Idrisov, 2021. "Economic and Legal Analysis of Cryptocurrency: Scientific Views from Russia and the Muslim World," Laws, MDPI, vol. 10(2), pages 1-17, May.
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    Cited by:

    1. Mehedi Hassan Murad & Imran Uddin & Sadia Maliha Trisha & Shuvo Kumar Mallik & Md. Kabirul Islam & Noushin Akhter Nova, 2025. "Financial Intelligence Units and Regulatory Technology to Combat Crypto Laundering," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 9(15), pages 130-144, January.

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