Despite a steep drop in their overall value over the last 18 months and a raft of interdictions by Latin American countries, cryptocurrencies continue to offer a convenient haven for groups to launder criminal proceeds.
In late April, agents from Brazil’s Department of Narcotics Investigations (Departamento de Investigações sobre Narcóticos – DENARC) captured a man running a clandestine cryptocurrency mining laboratory in the city of Porto Alegre. Investigators were tracking a drug trafficking operation and admitted to being surprised by the discovery.
"Everything indicates that this was a bitcoin mining activity. They could make payments for drug dealers, and there is also the options of using money from drug trafficking to buy bitcoins,” said a police officer attached to the case.
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Authorities seized 25 cryptocurrency mining machines, which ran 24 hours a day. The assembled technology had an estimated value of $65,000 and was thought to have been illegally smuggled from China.
Cryptocurrency mining is a technique that allows for the creation of bitcoins and the validation of transactions made with the currency, all powered by a network of computers requiring a vast amount of energy.
Despite the value of bitcoin being significantly lower than at its height in 2017, it remains attractive to criminals since dirty money can be laundered and transferred without any type of oversight or state control.
This is hardly the first case involving money laundering through cryptocurrencies in the region. In April 2018, the Spanish Civil Guard dismantled a criminal structure that bought bitcoins with illegal proceeds and sent the “legalized” money to accounts in Colombia. In total, the group used 174 bank accounts to launder $9.3 million.
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Limited legislation in Latin America to prevent such operations and the limited control financial authorities can wield over cryptocurrencies have made it an optimal plan for criminal structures seeking to clean shady money.
The Financial Action Task Force (FATF), one of the main international organizations fighting the misuse of new technologies for criminal activities, has made constant calls for Latin American nations to do more.
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In October 2018, the FATF updated its recommendations about how states should deal with virtual assets. “There is an urgent need for countries to take coordinated measures to prevent the use of virtual assets for crime and terrorism … Bitcoin is now the most common form of payment for drug sales on black markets. It is becoming a desirable method to transfer illicit drug revenues internationally,” it read.
Currently, Argentina, Brazil and Mexico are the only Latin American members of the FATF, but other countries have taken steps. In 2016, Colombia’s central bank banned the country’s financial institutions from receiving any payments in cryptocurrencies. In 2017, Bolivia did the same, banning all use of cryptocurrencies not issued or regulated by its central financial entity. Finally, in 2018, Ecuador unauthorized the use of bitcoin as a legal means of payment.
However, these remain isolated attempts to halt a transnational crisis, in the absence of a coordinated regional strategy. It also remains to be seen whether any such strategy would even have an impact, when Latin American criminal groups have found a safe haven to launder money through Chinese cryptocurrency platforms.