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Bitcoin Cryptocurrency Adds to Venezuela Money Laundering Risk

ELITES AND CRIME / 7 APR 2021 BY VENEZUELA INVESTIGATIVE UNIT EN

Venezuela is increasingly turning to the cryptocurrency Bitcoin, raising questions about its possible use in laundering money and evading US sanctions, not unlike the way Venezuela already uses the gold trade.

In February, a new kind of cash machine appeared in Caracas – one that allows Venezuelans to trade fiat currency for the cryptocurrency Bitcoin, now trading at nearly $60,000 per coin. The CEO of Caracas’ Bitcoin ATMs said they are “a tool of financial inclusion” in a volatile economy cut off from the dollar.

Such machines, however, are also ideal for laundering drug money, according to a recent Drug Enforcement Administration report. Unscrupulous owners allow for the deposit of large amounts of cash into the ATMs. Once the cash is in a digital form, it can be transferred to another user, hiding the origin of the funds and “removing much of the risk of transporting large amounts of bulk currency,” the report concludes.

The DEA also warns that drug traffickers and money launderers “are increasingly incorporating virtual currency” into trade-based money laundering activities.

What’s more, in Venezuela, the appearance of the Bitcoin ATMs comes after a November 2020 announcement by the Bolivarian army that it would begin using national resources to mine Bitcoin. Mining is an energy-intensive process that creates new Bitcoin by solving complex math problems that help audit the coin’s ledgers.

SEE ALSO: Venezuela News and Profile

The leading crypto-analytics firm, Chainanalysis, estimates that just over one percent of global cryptocurrency transactions are illicit, and according to the FinCEN files report by the International Consortium of Investigative Journalists and BuzzFeed News, the vast majority of illicit gains are still laundered through the traditional banking system, not cryptocurrency.  

Still, the Venezuelan army’s announcement raised questions about how the Venezuelan government might use Bitcoin to hide illicit activity, especially since both the DEA report and another recent study by Chainalysis warn that the trend is on the rise.  In 2019 criminal entities moved more than twice as much in Bitcoin as they did in 2018, Chainalysis concluded, citing “rogue” crypto exchanges, those that don’t comply with money laundering regulations, as the weak link in the system.

InSight Crime Analysis

Neither the Bitcoin ATMs nor Bitcoin mining by the Venezuelan army are, in themselves, illegal. But the Venezuelan government’s money laundering and embezzlement schemes, involving gold and Venezuela’s own cryptocurrency the petro, leave room for doubt.

Complicating the matter is that Bitcoin does provide Venezuelans with a way to insulate themselves from chaotic economic controls, hyperinflation and US Treasury Department sanctions. In fact, Venezuelans have been leveraging the country’s subsidized electricity to mine Bitcoin for years.

In that way, Bitcoin is more comparable to Venezuelan gold than it is to traditional currency laundering methods. Gold has been mined and sold as a way of gaining foreign currency. And as oil prices dwindled and inflation soared, Venezuela began mining gold in larger and larger quantities, with the aim not only of keeping Venezuela solvent but also enriching the country’s political and military elites and avoiding US controls. In addition, it quickly became a favorite tool of money laundering for transnational drug traffickers.

Cryptocurrency could be appealing for the same reasons. In 2018, Venezuela’s President Nicolás Maduro launched a digital currency dubbed “the petro,” claiming it would “move the country toward new forms of international financing for economic and social development.”

SEE ALSO: Venezuela’s New Digital Currency: Economic Gamble or Criminal Scam?

The petro rapidly failed. But Venezuelan money laundering expert, Alejandro Rebolledo, wrote in his book Asi se lava el dinero en Venezuela (How Money is Laundered in Venezuela) that the experiment succeeded in another way – it provided cover for the Maduro regime to create structures that would allow corrupt military leaders to launder money in the form of the cryptocurrency exchanges.

These were the very same kind of crypto exchanges Chainalysis warned about. And evidence suggests this is exactly how they are being used.  In its 2020 Geography of Cryptocurrency Report, Chainanalysis examined the seven crypto-exchanges registered with the Venezuela government. Most users were likely trying “to preserve [their] wealth or move it somewhere to evade sanctions, as most high-profile Venezuelans can’t open bank accounts in other countries," Moisés Rendón, a Venezuela expert at the Center for Strategic and International Studies (CSIS), said.

In fact, in examining just one platform, the report found that more than 75 percent of transactions consisted of $1,000 or more in cryptocurrency, while Venezuelans earn an average of 72 cents a day.

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