Cryptocurrency Scandals and Anti Money Laundering

While the Bitcoin craze continues unabated, criminals waste no time in taking advantage of this situation. According to research, cryptocurrency fraud has doubled in January. In the reports of the last months, it is seen that these numbers have increased. In the criticisms made for the cryptocurrency craze, it is stated that the desire to earn money easily and get rich quickly leaves new investors vulnerable to fraudsters. 


According to data from the national fraud reporting service Action Fraud, cryptocurrency fraud reports have increased by 57% in the last 12 months to 5,581. In January 2021, Bitcoin continued to hit record highs, more than doubling from January 2020 to 720. In addition, it was reported that £ 14.3 million was stolen through cryptocurrency fraud in January alone. Here are some cryptocurrency frauds that have left their mark on the Anti Money Laundering sector. 


1) Plus Token Ponzi Scheme 

Plus Token generated $ 2.9 billion in 2019, covering 64 percent of the volume of cryptocurrency crimes. Plus Token was a cryptocurrency Ponzi scheme camouflaged as a high return investment program. The operation ended as of June 2019. Plus Token executives abandoned the plan, withdrawing about $ 3 billion in cryptocurrency. This Ponzi scheme scam caused bitcoin prices to drop drastically in 2019. 


Plus Token had a large following, especially in Korea and China. Investors unfamiliar with cryptocurrencies often preferred Plus Token. Because Plus Token offered great rewards that encouraged its victims to "invest." The program provided between 9 percent and 18 percent return on investment per month. 


2) KuCoin Hacking 

The KuCoin hacking took place on September 26. The cyber-hacked cryptocurrency provider KuCoin has securely stored its cryptocurrency from the web and in hot wallets instead of remote cold wallets. However, the firm team found that cryptocurrency from hot wallets, including Bitcoin, Ethereum, and ERC-20 tokens, was emptied after spotting some major withdrawals. 


It is estimated that at least 150 million dollars of crypto money were stolen in this cyber attack. The company stated in its statements that it does not approve the amount lost. Also, KuCoin CEO and co-founder Johnny Lyu said 84% of stolen cryptocurrency funds were recovered.  


3) DeFi Protocols 

DeFi Protocols accounted for 99% of the fraud volume in the second half of 2020. DeFi protocols covered almost half of all crypto attacks for 2020. As regulators focus on how the crypto space should work, new laws and regulatory policies are emerging. In the US, FinCEN has proposed two significant rule changes in regulatory obligations that banks and virtual asset service providers (VASPs) face when handling certain virtual currency transactions. 


Users aim to profit by depositing cryptocurrencies into a savings account and similar networks through decentralized finance (DeFi) platforms. However, if the deposited cryptocurrency remains locked in the network, it causes periodic payments well above the rates offered by banks. 


4) Thodex Scandal

Turkey recently faced a Thodex scandal. Last week, the cryptocurrency exchange platform, Thodex, announced on the website that the exchange would be closed for a few days to provide better service to users. 


However, users who could not access cryptocurrency accounts and withdraw their money were suspected of scams. It was determined that Thodex CEO Özer received $ 2 billion in funding from 391,000 investors and fled abroad. Thousands of Turkish users have filed a criminal complaint because they are victims of the exit plan. However, it was determined that the stolen funds were "irrevocable" in the legal process. 


Cryptocurrency Regulations 

A rule-making proposal (NPRM) published in December obliged banks and VASPs to authenticate their customers and record virtual currency transactions involving more than $ 3,000. However, they will need to generate CTR-like reports for virtual currency transactions above $ 10,000. 


NPRM defines "otherwise covered" wallets belonging to countries such as Iran and North Korea, which are not subject to BSA and are defined as countries with high money laundering risk, as wallets located in a foreign jurisdiction and held in a financial institution. 


FATF has published its 12-Month Review of the Revised FATF Standards on Virtual Assets and Virtual Asset Service Providers as of June. This review was created to avoid the potential risk of money laundering that future virtual asset service providers could pose. In addition, under the FATF Travel Rule, known as the Travel Rule, banks and some financial institutions dealing with crypto assets are obliged to disclose and transfer specific customer data between the parties.


The enactment of these rules by the first half of 2021, the establishment of crucial new crypto compliance requirements, and the rush of banks and VASPs to file crypto CTRs and SARs have proven the danger of money laundering activities through cryptocurrency. 


Virtual asset provider institutions need to adopt a risk-based AML / CTF system against money laundering risks. Sanction Scanner is an AML / CTF compliance software that aims to reduce the money laundering risks of businesses. It helps companies adopt a risk-based approach and reduce workloads with the end-to-end solutions it provides. 

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