By Vish Gain for AMLi
CRIMINAL ACTIVITY in Latin America is creeping into cyberspace as law enforcement authorities report increasing use of cryptocurrency to launder money.
The recent arrest of suspected human trafficker Ignacio Santoyo after Mexican police tracked him using information he provided to buy bitcoins is attributed to the implementation of a new law that requires registered cryptocurrency trading platforms to report transfers above 56,000 pesos ($2,830).
The law has been enacted in only two Latin American countries — Mexico and Brazil — and aims to track the use of bitcoin and other cryptocurrencies that are inherently designed to anonymise the identities of users.
“There’s a transition to committing crimes in cyberspace, like acquiring cryptocurrencies to launder money … and the pandemic is accelerating it,” head of Mexico’s financial intelligence unit Santiago Nieto told Reuters.
Drug gangs have seen particularly high uptake of cryptocurrencies, especially big players such as the Jalisco New Generation Cartel and the Sinaloa Cartel of Joaquín “El Chapo” Guzmán — considered to have been the most powerful drug trafficker in the world.
Reuters reports that Mexican President Andres Manuel Lopez Obrador has faced “record” levels of gang violence in his first two years of office, intensified by the shrouding of profits in less regulated platforms.
He leads a country where the organised crime’s cash laundry is estimated at a value of $25 billion a year, according to government figures. Over the last three years, the industry has grown and evolved in a way that makes it harder to estimate its value.
For instance, a recent case involving an international police crackdown on three Colombian drug gangs found millions of dollars being laundered using cryptocurrencies, according to Reuters.
To make matters worse, a gang known as the “Bandidos revolution team” is suspected of carrying out sophisticated cyberattacks on large banks, stealing millions of dollars.
While the new cryptocurrency law is showing preliminary success in identifying illegal transactions, criminals have found innovative ways to circumvent the regulations.
Nieto said criminals split cash into small amounts and deposit them in various bank accounts, a technique known as “smurfing”. They then buy small amounts of bitcoin online, he added, obscuring the origin of the money and allowing them to make necessary international transactions.
The threshold for banking transactions that raise red flags is $7,500.
According to government records seen by Reuters, Santoyo and his sister acquired some 441,000 pesos ($22,260) in bitcoin on Bitso between May and November 2018. Bitso is one of 11 registered crypto trading platforms in Mexico.
In a similar case that is still ongoing, gang leader Hector Ortiz was detained by Mexican authorities in 2019 after spending exorbitant amounts on bitcoin, triggering the threshold sensor and helping law enforcement to track him down using his provided phone number.
The head of Mexico’s cyber investigations unit is less optimistic about the efficacy of the new law.
Ronald Rosas, who leads the Cyber Investigations Unit (UICOT) at the Mexican attorney general’s office, told Reuters it was tough to track criminals despite the new law. He said the UICOT, which staffs around 120 people, needs four times more employees for them to be up to the task.
With 1,033 bitcoin threshold alerts this year alone, authorities need to deal with each case separately to ascertain illegal activity. And this includes only transactions tied to registered platforms. Rosas said the dark web and other unregulated platforms were hard for his team to track, making it impossible to estimate the real scale of the problem.
Seizures of hard cash have dropped from $741 million in 2011 to $234 million in 2018 — indicating a significant move to newer technologies such as cryptocurrency laundering, according to a US Drug Enforcement Agency report published in January this year.
With the challenges in regulating the crypto market and dark web, exacerbated by the pandemic, criminal use of virtual payments is expected to grow substantially in the near future.
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