Is Bitcoin a tool for criminals? Drug Cartels Prefer Banks


A report from the International Narcotics Control Board (INCB) shows that bitcoin is not the preferred method for drug cartels and other criminal groups to launder money, they use banks instead. This opposes the widespread narrative that claims the digital coin creates an opportunity for crime.

This argument is often used to excuse the hostility of different entities towards bitcoin and tends to propose its ban. But if it is in fact traditional financial institutions that enable the criminal schemes, should the authorities ban them instead and embrace bitcoin? (I’m only pointing out the irony).

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How cartels leave money

Drug cartels need a lot of funding. The INCB attempts to follow the money trails left behind by criminal operations in order to disrupt illicit financial flows and neutralize criminal groups.

In their last reportthe organization looked at the mechanisms these organizations use to didisguise the proceeds of crime and integrate them into the legitimate financial system.

More than 80% of criminal networks active in the European Union use legal business structures for their criminal activities.

The main forms of money laundering mentioned are: “the banking system, cash couriers, bulk cash smuggling, money service providers, alternative funds transfer systems (e.g. hawala), stores of value, commerce-based money laundering, mobile or internet payments, cryptocurrencies, non-profit organizations, real estate and front companies.

Although cryptocurrencies have been repeatedly described as dangerous tools enabling illicit activities, the organization states that “tTraditional banks continue to be preferred mechanisms for laundering money. They recall an interesting example:

In 2012, HSBC admitted to laundering $881 million in drug proceeds for the Mexican Sinaloa Cartel between Mexico and the United States of America. Prosecutors declined to seek an indictment from the bank, but instead allowed HSBC to pay a $1.92 billion settlement and face five years of probation, during which its efforts to prevent money laundering money would be monitored by a court-appointed watchdog.

Subsequently, a 16-month investigation by various journalists and media partners concluded that the banks continued to provide services to criminal activities, including “front companies linked to looted government funds and financial intermediaries for drug traffickers. drug”.

Apparently, compliance and anti-money laundering measures have not been sufficient to prevent the largest financial institutions “from being complicit in the movement and laundering of illicit financial flows”, they point out.

Mexican cartels are one of the most dominant drug groups in the world. To launder their money, they are believed to practice “cross-border smuggling of bulk cash” and use front companies, “a complex system that involves domestic and international financial transactions”.

Is Bitcoin useful to criminals?

The report also claims that “drug cartels in Mexico are increasingly turning to the internet, bitcoin, and e-commerce to launder money and sell drugs.”

The Mexican government established a law in 2018 that requires all crypto exchanges to report transfers over $2,830. Although many have claimed that cryptocurrencies help criminals because they operate anonymously, exchanges comply with regulatory and anti-money laundering measures through a Know Your Customer process. It seems that they often helped the authorities, not the criminals.

“Mexican cartels are thought to launder around $25 billion a year in Mexico alone.” Criminal groups “split their illicit money into small sums and deposit them in various bank accounts”.

With this method, they are believed to buy small amounts of bitcoin online, below the red flag marks. This can hide the money and allow them to pay associates, according to the report.

“According to the United States Drug Enforcement Administration, Mexican and Colombian organized crime groups are increasing their use of virtual currency due to the anonymity and speed of transactions.”

However, unlike banks, transactions of Bitcoin and other digital coins are easily traceable and publicly stored. Investigators can track movements.

On-chain analysis reported recently that in 2021, crypto-based crime hit a new all-time high, doubling the amount of money received the previous year from illicit addresses to $14 billion. However, total crypto usage also grew exponentially over the year, around 567%.

Given that crime-related activity only saw a 79% increase, this also means that “the share of illicit activity in cryptocurrency transaction volume has never been lower”, 0 .15% of total cryptocurrency trading volume in 2021.

Another detail worth noting is that the recorded $14 billion is a far cry from the estimated $25 billion in money laundered each year by Mexican cartels. Even if they were the only ones using crypto illegally, it wouldn’t be enough to fuel their funds. They still have to turn to mechanisms linked to the traditional financial system.

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Bitcoin is trading at $38,823 in the daily chart | Source: BTCUSD on