Legal Consequences of Cryptocurrency in Money Laundering

Legal Consequences of Cryptocurrency in Money Laundering ImageCryptocurrency has a history of being used in crimes. The infamous black market site Silk Road used cryptocurrency to facilitate transactions until the FBI shut it down. And now it’s being used for money laundering and other financial crimes.

Initially, cryptocurrency attracted financial crime due to its lack of regulation. However, U.S. lawmakers updated the laws governing financial institutions and transactions over the years. Today, the same laws, such as 31 USC 5311 and 31 CFR 1010, that govern traditional financial institutions like banks also apply to crypto transactions.

If you’re facing a federal charge of money laundering stemming from your use of cryptocurrency, you’re looking at some severe penalties. Because of the complex nature of blockchain and cryptocurrency-related crimes, you will need a good team of lawyers and industry experts on your side.

What Is Money Laundering?

18 USC 1956(a)(1) defines money laundering as conducting a financial transaction with:

  • The intent to promote specified illegal activity
  • The intent to violate section 7201 or 7206 of the Internal Revenue Code of 1986
  • The knowledge that the transaction is designed to conceal the nature, location, source, ownership, or control of the illegal proceeds
  • The knowledge that the transaction is designed to avoid reporting requirements

How Is Cryptocurrency Used for Money Laundering?

There are a few reasons why cryptocurrency has become the go-to for money laundering schemes. The first is its pseudonymous nature. Crypto wallets don’t have names connected to them. Instead, they have a string of numbers and letters that could belong to anyone.

However, pseudonymous isn’t the same as anonymous. If the government connects you to a specific wallet, your transactions are no longer private.

For this reason, it’s not uncommon for those who use crypto to launder money to have multiple wallets. And there are even services that mix crypto funds from multiple wallets together to obscure where the funds originate from.

In addition, some cryptocurrencies are specifically designed to have enhanced privacy features that make them harder to track. And because cryptocurrency isn’t tied to any country’s currency, people can easily transfer it across borders.

How Is a Blockchain Used to Combat Money Laundering?

A blockchain is a tool that exchanges and regulatory bodies can use to combat money laundering. All transactions on a blockchain are public information, which is why cryptocurrency’s pseudonymous nature isn’t as private as you might think. Once police have identified one of your wallets, they can see every transaction you’ve made. They can even see the other wallets you’ve interacted with.

Additionally, a blockchain’s public ledger is immutable. Once a transaction appears on the blockchain, it’s there forever. You can’t go back and cover your tracks. This means investigators can use blockchain analysis tools to track and analyze transaction history to identify patterns of suspicious activity.

In some cases, the smart contracts that make up a blockchain can even report suspected criminal transactions. Crypto exchanges can implement smart contracts that comply with and enforce the Anti-Money Laundering Act of 2020 (AMLA).

What Is Crypto AMLA Compliance?

Cryptocurrency exchanges that operate in the United States must comply with the AMLA. AMLA compliance involves taking steps to prevent, detect, and report suspected money laundering activity. Some of the key components of the AMLA include:

  • Know Your Customer – Financial services must verify customers’ identities before allowing them to use their services. If police are investigating your wallet for money laundering, they can subpoena the exchange for your information.
  • Transaction Monitoring – Crypto exchanges must also identify patterns that suggest suspicious activity and monitor transactions for those patterns.
  • Required Reporting – If an exchange suspects a wallet is engaging in suspicious activity, it must file a suspicious activity report (SAR) with the Financial Crimes Enforcement Network (FinCEN).
  • Record Keeping – Exchanges must keep detailed records of customer information and transactions.
  • Risk Assessment – Financial institutions must also regularly assess the risk of money laundering and implement fixes to combat those risks.

In addition to AMLA compliance, 31 USC 5318 lays out minimum anti-money laundering programs financial institutions must carry out. These include:

  • Developing policies, procedures, and controls to combat money laundering
  • Designating a compliance officer
  • Providing ongoing employee training to identify money laundering
  • Undergoing independent audits and test programs

Penalties for Money Laundering

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What penalties could you be facing if the federal government charges you with cryptocurrency money laundering? According to 18 USC 1956(a)(2), the criminal penalties for money laundering are:

  • A fine of up to $500,000 or twice the value of the money laundered, whichever is greater,
  • Up to 20 years in prison, or
  • Both of the above

In addition to these charges, you could also face State-level charges related to your actions.

A recent example of the government charging someone for cryptocurrency money laundering is the United States v. Harmon case. The government charged Larry Dean Harmon with operating a cryptocurrency mixer designed to hide Bitcoin used for illegal purchases.

The charges against Harmon include:

  • Conspiracy to launder money (Federal)
  • Operating an unlicensed money-transmitting business (Federal)
  • Engaging in a money-transmitting business without a license (District of Columbia)

Texas White Collar Crime Attorney

Have you been arrested for or charged with cryptocurrency money laundering? Defending against these charges will be complicated and require expert witness testimony from financial advisors and blockchain and cryptography specialists.

These aren’t charges you can take on alone. Contact Rosenthal Kalabus & Therrian for a consultation with one of our financial crime attorneys. We’ll evaluate your case, explain your legal options, and walk you through how we defend against charges of financial crime. Call us today at (972) 369-0577 or contact us online.

Written by: Rosenthal Kalabus & Therrian Last Updated : July 9, 2024