The cryptocurrency frauds have become a widespread issue nowadays. The Ponzi schemes, Pump and Dump tactics, Twitter cryptocurrency scambots are all around.
These cryptocurrency frauds put invests at risk. It’s not just about the businesses but consumers too. Consumer fraud, in the age of cryptocurrencies, is the type of fraud where something or someone is one the pretext to be you. As per the PWC’s 2018 economic crime survey, 29% of companies had reportedly suffered from consumer fraud.
It won’t be wrong to say that the anonymity that cryptocurrency provides has opened gates for another channel of illegal activity that can affect people with significant losses. PwC NL recognizes this as a new risk for crypto-related businesses, so they have 10 full-time staff dedicated to firms active in this domain.
Money Laundering via Unregulated Exchanges
Ever wondered how do stolen cryptocurrencies end up in real crypto wallets?
Once hackers have succeeded to gain access to the funds, they have to retrieve that money anyhow and convert it to fiat currency. To make this happen, they use one of the many unregulated crypto exchanges that exist.
Unregulated exchanges have a lax KYC policy. This means that the user’s identity isn’t listed publicly, allowing hackers to get away with the theft. This will enable consumers to deposit or withdraw about 2 BTC every day without a full identity check.
The Time Will Change, Once 5AMLD Breaks into the System
The golden era of unregulated cryptocurrency exchanges is about to come to an end. This is possible once the 5th EU anti-money laundering directive comes into force in January 2020. There are 3 main changes which can be seen in the regulation of cryptocurrency.
- Cryptocurrencies will be taken as ‘obliged entities’ and will have an obligation to do the customer due diligence and submit suspicious activity reports.
- Financial Intelligence Units may be mandated for obtaining addresses and identities of cryptocurrency owners, negating the anonymity advantages of using cryptocurrency.
- Finally, crypto wallets and exchanges will be required to register with the competent authorities in their local locations.
By putting exchanges under regulation, the fraudulent activities will be discouraged as hackers will have no way of converting digital money into fiat currency outside of using regulated exchanges.
Also, the lack of anonymity will help authorities to trace the transactions even faster and go after the people behind the fraud.