Bitcoin ATMs are becoming the easiest way to launder money – and an extremely lucrative business, charging fees that would otherwise be exorbitant, of around 20%. This compares to the going rate to launder money on the black market of about 30%. 

A new longform piece in Bloomberg tells the story of these types of ATMs, which are starting to become ubiquitous throughout not only New York City, but the United States. The article details a group of people who work for Cottonwood Vending LLC, a New York based bitcoin operator, that hires former US Army Rangers and other ex-military members to go out and collect on a daily basis from their ATMs. According to the article, one night's haul for the collectors can be up to $300,000 in cash.

And the company, Cottonwood Vending, now operates 91 bitcoin ATMs across the city and has 13 employees. Its gross annual revenue is over $35 million, or about $385,000 per machine, per year. The company operates relatively mysteriously, with little information on its website and limited information on its founders. When contacted by Bloomberg for comment, the company didn’t respond. Using ex-military members to collect is a system that was borrowed from the marijuana industry, which is similarly barred from the banking industry. 

Now, there are more than 4000 bitcoin ATMs worldwide with over 2300 of these machines located in the US. Even crazier is the fact that almost anybody can buy a Bitcoin ATM for a couple thousand dollars. For instance, a University of California student recently installed one on his campus. It's also easy to obtain a federal money transmission license, according to the Bloomberg article. The article says it takes about 15 minutes on the United States Department of Treasury website. Some bitcoin companies openly skirt the rules, including a company in Los Angeles that owns 17 machines and tells customers that its transactions are "totally anonymous" which, if true, is illegal.

Bitcoin ATMs are obvious convenient vehicles for laundering money. The anonymity of bitcoin has already been embraced by drug dealers and cyber criminals because of its decentralized and anonymous nature. ATMs where you can convert your cash into this anonymous crypto takes its ease of use one step further. And investigating and regulating these bitcoin ATMs is a task that hasn’t been taken on in much of a formal regard yet. The laundering amounts are too small and only a blip on the radar for regulators to take seriously.

Arnold Spencer, general counsel at Coinsource, which is the largest Bitcoin ATM operator in the world, admits as much, telling Bloomberg: “There are people clearly trying to launder money through our BTMs in small amounts. We’re catching most of them, if not all of them.” Spencer, a former U.S. attorney specializing in money laundering, helps call out the compliance issues of competitors as part of his job. He does this by carrying cash with him wherever he goes to test out competing machines. 

By Spencer's estimates, half the machines in the US don’t follow the rules which require them to verify identification or put limits on transactions. This could be resulting in over $500 million in illicit cash being laundered annually.

To make his point, Spencer brought more than $14,000 into a convenience store and used it to buy bitcoin without identification. He also brought a fake ID bearing the name and photo of Frank Sinatra, which the machine didn’t catch as fake. He then made three transactions of over $3000 each and, when one ATM prompted for a photograph, held up his photo of Frank Sinatra. He used a burner phone to verify his identity and before he knew it, was finished. In just 45 minutes, he had broken numerous US banking laws similar to the ones that require banks to notify the government when large cash transactions are made.

Spencer even went to the Feds to inform them that these types of transactions were happening across the United States. However, he is not optimistic that any action will result. “My best guess is nothing will come of that,” Spencer told Bloomberg.

And so, companies are now racing to install these machines everywhere because they can reap enormous fees. One machine located in a poor neighborhood in Detroit was used more than 7500 times in 2016 to bring in over $800,000 in cash and more than $120,000 in fees for its operators, who charge 15%. And competition for space to place these ATMs can also be fierce. That same machine was then smashed with a hammer in late 2016 and the company running it saw its other machines targeted on the same day. The company who owns it, Bitcoin of America, received threats that more damage would be done to their property unless ransom was paid – of course, in bitcoin.

You can read the entire Bloomberg expose here.