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Digital currencies are seeing increased mainstream attention—and that’s a good thing for bitcoin bulls. However, digital currencies, many of which offer users anonymity, are also being used increasingly by nefarious actors, according to recent House fiancé committee.
At a June 20 hearing held by the Subcommittee on Terrorism and Illicit Finance, one of the key takeaways was what was described as a growing use of virtual currencies for illicit purposes. “Law enforcement has identified an uptick in criminal and terrorist exploitation of VCs [virtual currencies] to raise funds and launder money,” the subcommittee wrote in a news release following the hearing.
Ascertaining how widespread cryptocurrency use is for transacting things such as drugs and terrorism financing is difficult due to the nature of how digital currencies move. However, a January 2018 research paper, concluded that nearly half of all bitcoin transactions are for illegal activity.
“We find that illegal activity accounts for a substantial proportion of the users and trading activity in bitcoin,” wrote scholars from the University of Sydney, the University of Technology Sydney and the Stockholm School of Economics in Riga.
“For example, approximately one-quarter of all users (25%) and close to one-half of bitcoin transactions (44%) are associated with illegal activity. Furthermore, approximately one-fifth (20%) of the total dollar value of transactions and approximately one-half of bitcoin holdings (51%) through time are associated with illegal activity.”
While the stigma of unlawful behavior with digital currencies will be hard to shake because it is the use-case often associated with virtual assets and blockchain, which underpins these digital currencies. Whether it is banks trading bitcoin or multinationals using blockchain to improve supply chains and transparency, the adoption has climbed over the last 12 months.
However, safety must not be compromised during this growth said Robert Novy, deputy assistant director at the Office of Investigations at the Secret Service. “Digital currencies have the potential to support more efficient and transparent global commerce, and to enhance U.S. economic competitiveness,” said Novy.
“However, because digital currencies continue to be used to facilitate illicit activity, law enforcement must adapt our investigative tools and techniques to dismantle criminal groups that use these instruments for fraudulent activity or money laundering,” he continued.
Wednesday’s hearing was a reminder that while lawmakers in Washington, D.C. are becoming more comfortable with the new technology, enforcement bodies are continuing their push for continued oversight to protect individuals.
“Fundamentally, we must maintain the integrity and accessibility of the global financial system and protect it from abuse,” said Thomas Ott, associate director, Enforcement Division for the Financial Crimes Enforcement Network.