Criminals utilize a variety of tactics to mask the illicit origin of payments utilizing crypto money laundering. The most basic kind of bitcoin money laundering relies heavily on the fact that cryptocurrency transactions are anonymous. Money laundering with cryptocurrency follows the same principles as money laundering with cash.
There are three main stages of crypto money laundering.
Stage 1
The first stage is called Placement. Although authorities do not consider bitcoin to be a monetary instrument, money service organizations and money transmitters have begun to employ Monetary Instrument Logs as a complying best practice. Individuals can purchase cryptocurrencies on exchanges and crypto services using fiat or other means of payment.
The majority of the time, criminals purchase cryptocurrency with illegitimate funds. Every cryptocurrency exchange should employ strong KYC solutions to avoid being caught. Many cryptocurrency exchanges do not have the proper KYC/AML solutions in order to prevent money laundering and tax evasion.
Stage 2
The second stage is called Layering or Hiding. It is usually regarded as the most difficult part of the money laundering operation since it purposely integrates several financial instruments and transactions to confuse AML rules. The goal is to make it difficult to track down money laundering operations. To do so, cybercriminals must layer their expenditure in order to obscure the trail of illicit funds. This is typically accomplished by changing cash into monetary instruments or purchasing assets with illegal funds in order to resell them. Thanks to services like tracing these assets might be difficult, if not impossible, tumblers/mixers, crypto gambling, and DeFi (decentralized finance).
Stage 3
The third stage is Integration. Meaning that now criminals can withdraw their cash and reinsert them into the financial systems as legitimate money if enough time has passed throughout the layering phase. Although the value of the laundered money may have reduced due to layering expenses, they will almost certainly be utilized to finance high-value acquisitions during integration, such as real estate.
