A cryptocurrency is a decentralized digital money, which is an alternative form of payment created using encryption algorithms. Cryptocurrencies are a technical and financial innovation that hold high potential for the global economy, however, in contemporary times, these currencies are becoming preferred tools for money laundering by criminal organizations because of the following reasons:

• Anonymity: While all transactions that occur on the blockchain are kept on the public record and are accessible to anyone for review, the identities of transaction makers remain unknown, thus making cryptocurrencies attractive for money laundering.
• Cross-border money laundering: Cryptocurrencies can be transferred quickly and easily across different countries, thus enabling criminals to launder the proceeds of their illicit activities through the international trade system.
• Lack of regulations: Cryptocurrencies lack the regulatory safeguards that financial institutions and markets have, such as third-party audits, financial reporting and disclosure, prevention of insider trading, etc. thus becoming a virtual safe haven for money laundering.
  • For e.g., according to blockchain data platform Chainalysis, illicit transactions using cryptocurrency totaled $14 billion in 2021.
• Speedy transactions: Cryptocurrency transactions take place quickly and, in some cases, in a matter of seconds, offering money launderers a greater level of efficiency than fiat currencies.
• Large volume of transactions: Since cryptocurrency transactions occur digitally, money launderers can move larger volumes of illegal funds into and out of the financial system quickly, often outpacing the Anti-money laundering measures put in place by authorities.

Considering these challenges, the following measures can be taken to tackle the problem of money laundering using cryptocurrency:

• Application of the risk-based approach: Countries and financial institutions should identify and assess the risks emerging from cryptocurrency and the operations of crypto service providers and bring out measures commensurate with the risks.
• Transaction monitoring: Government must be able to monitor cryptocurrency transactions for suspicious activity and red flags, using automated monitoring technology.
• Licensing or registration: Crypto service providers should be required to be licensed or registered in the jurisdiction(s) where they are created.
• Customer due diligence: Crypto service providers must establish and verify the identity of their customers accurately using digital identification methods.
• Sanctions and other enforcement measures: Countries should ensure that there is a range of effective and dissuasive sanctions, available to deal with Virtual asset service providers VASPs that fail to comply with Anti-money laundering guidelines.
• International cooperation: Countries should provide the widest possible range of international cooperation in relation to money laundering through cryptocurrency. Especially, supervisors of crypto service providers should exchange information promptly and constructively with their foreign counterparts.

The technology behind virtual assets is fast-moving and thus, there is an urgent need to strengthen the anti-money laundering measures as per the need of the hour. Further, international fora like OECD, G20 etc. need to fast-track the discussion for a globally coordinated approach in order to regulate crypto assets.