Bitcoin and other digital currencies are seemingly tailor-made for use by organized crime groups, given that they’re widely used and allow for a level of anonymity. But a study by the European Union exploring financing options used by organized crime and terror groups claims that the technological barriers associated with using bitcoin and other digital currencies have so far prevented widespread adoption.
The use of cryptocurrencies by criminal groups – other than hackers - is fairly rare.
In its conclusion, the report claims that:
“few investigations have been conducted on virtual currencies which seem to be rarely used by criminal organizations. While they may have a high intent to use due to VCs characteristics (anonymity in particular), the level of capability is lower due to high technology required.”
However, the EU said the money laundering threat posed by these currencies is “moderately significant,” given their ability to transfer money more or less anonymously.
“The assessment of the [money laundering] threat related to virtual currencies shows that organised crime organisations may use virtual currencies to have access to "clean cash" (both cash in/out). When used, virtual currencies allow organised crime groups to access cash anonymously and hide the transaction trail. They may acquire private keys of the e-wallets or obtain some cash from ATM. However, cases are quite rare at this stage and few investigations have been undertaken concerning this risk scenario. One of the reasons is that the reliance on virtual currencies to launder proceeds of crime requires some technical expertise. According to LEAs, the amounts of money laundered via virtual currencies are quite low, which tends to demonstrate that criminals' intent to use them is rather limited because this modus operandi is not considered as attractive enough (in particular because of the volatility of the virtual currencies' market). From a technical point, virtual currencies present some commonalities with e-money but the IT expertise at stake for virtual currencies means that organised crime would have lower capability to use them than e-money which is more widely accepted.”
Terrorist groups, the report concludes, may have “some interest” in using VCs to finance their activities, but the number of cases that have been reported are limited.
In its description of virtual currencies, the EU says they can be traded on the internet, are generally characterized by non-face-to-face customer relationships, and may permit anonymous funding or purchase. They may also permit anonymous transfers, if sender and recipient are not adequately identified.
But although virtual currencies have been grabbing headlines lately, the criminal economy is still overwhelmingly cash based. According to the report, this means that, whether they like it or not, perpetrators selling some form of illicit product are likely to be paid in cash. The more successful the perpetrators are and the more of the commodity they sell, the more cash they will generate. This is one of the reasons why the supply of cash - particularly high-value denominations - continues to rise beyond the pace of inflation, despite the advent of digital payment options.