Met Police urge for crackdown on digital asset money laundering

Getting your Trinity Audio player ready...

London’s Metropolitan Police are lobbying the U.K. government to legislate to make it tougher for criminals to use and transfer digital assets, according to Detective Chief Superintendent Michael Gallagher.

Gallagher, who is retiring this year, told The Times that “cryptocurrency, and criminality involving crypto, has developed so quickly, and because legislation is so slow, we’re having conversations now about realigning some legislation that currently applies to laundered cash to cryptocurrency.”

The U.K. introduced changes to their anti-money laundering legislation at the beginning of 2020, extending the scope of those subject to the legislation to include digital asset platforms including exchanges and custodian wallet providers. Under the legislation, digital asset platforms must assess and control the risks of money laundering to their business, must be able to identify the owners of digital assets, employ a risk-based approach in carrying out due diligence on transactions, and report suspicious transactions to regulators. Businesses dealing in digital assets must also register with the Financial Conduct Authority (FCA), the U.K. equivalent of the U.S.’ Securities and Exchange Commission (SEC).

However, the law still lags behind the reality of digital asset use in some key areas. As such, Gallagher and other senior detectives are lobbying the U.K. Home Office for legislative changes. They want to ensure that the tools available to law enforcement in tackling traditional money-laundering and criminal financing are also available in cases where digital assets are used.

For example, in the U.K., law enforcement can currently apply to the courts for an account freezing order (AFO) under the Criminal Finances Act 2017 if they can demonstrate there are reasonably grounds to suspect that the funds are either unlawfully obtained or intended for use in unlawful conduct. However, the term ‘account’ is limited to bank and building society accounts, meaning that tool can’t be used where the ‘account’ is a digital asset wallet.

The pandemic has highlighted how money laundering is a vital step in the process for criminals being able to use their proceeds. Due to swathes of consumer businesses being forced to close during the COVID-19 pandemic, criminals have less avenues through which to credibly launder illicit money. In fact, for the period of 2020-21, the London Metropolitan Police reported that they had seized £47.2 million worth of cash from criminal gangs—up £18.4 million from the year before.

On some level, this shows the effect that taking away the avenues of money laundering can have on the fight against crime. Without a means to launder the proceeds of their illegal activities, the London gangs had nowhere for the money to go meaning that the Met were able to recover far greater quantities than they otherwise might have.

However, the National Crime Agency warned in its 2021 National Strategic Assessment of Serious and Organized Crime Report that COVID-19 has accelerated the criminal use of digital assets and in particular in the laundering of criminal cash:

“During lockdown, criminals found it increasingly difficult to move cash, so cryptoassets such as Bitcoin have been used by many criminal groups to facilitate money laundering.”

This should emphasize the importance of ensuring that digital assets are not simply left between the gaps of existing legislation.

Gallagher’s call comes a week after the U.K.’s Financial Conduct Authority (FCA) announced that a ‘significantly high’ number of digital asset businesses operating in the U.K. were not meeting the required standards under money laundering regulations. The FCA has yet to embark on the kind of pro-active enforcement crusade we’ve recently seen from the SEC, but experiences from the U.S. and around the world have shown that without enforcement, digital asset businesses are happy to operate illegally for as long as they can get away with it.

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—from BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple and
Ethereum—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.