On December 7, 2022, the European Union Agency for Law Enforcement Cooperation (Europol), in partnership with Basel Institute on Governance, published recommendations on tackling crypto crime and money laundering.
The report seeks to highlight best practices for both public and private bodies to respond to crypto assets-related crime and money laundering.
Here we summarize the report’s five key recommendations:
1. Break down silos between “traditional” and “crypto”
Current trends show that cryptocurrencies and other crypto assets have started to merge with mainstream financial markets and services. And as a result, so do organized crime and money laundering involving crypto assets.
This makes the distinction between physical assets and virtual assets incredibly blurry. Which has repercussions for crime response teams.
Currently, approaches to crypto crime and money laundering are considered separate areas in investigations, often delegating special units to fight cybercrime.
However, these special units cannot effectively detect, investigate, and prosecute crimes and money laundering because they are not involved on the ground and in all cases which involve both physical and virtual worlds.
To break down these silos between physical and virtual, more must be done to ‘build basic blockchain/crypto training into onboarding and ongoing professional development.’ This would deliver high value to law enforcement agencies, financial intelligence units, judicial authorities, and regulatory bodies.
To do so Europol recommends:
- Financial institutions and other entities with AML/CFT obligations to consider introducing blockchain/crypto training for relevant staff;
- Law enforcement and the private sector, multidisciplinary teams to bring together specialists from financial crime, organized crime, crypto, and cyber units to cooperate on cases and share knowledge.
2. Regulate broadly and make full use of existing laws
Existing financial crime legislation can be used to prosecute crimes and money laundering related to crypto-assets and recover illicit funds. This has been illustrated where existing asset recovery laws have allowed some jurisdictions to confiscate large amounts of illegal crypto assets.
Developing new financial crime legislation or revising existing laws should be broad enough to cover crypto assets and capable of anticipating future evolutions in the crypto industry.
This will make it easier for law enforcement, prosecutors, and judges to apply them to all cases, whatever the nature of the asset involved. Public consultations can help ensure new or revised laws are fit for purpose in this fast-evolving industry.
3. Take advantage of the blockchain analytic tools to disrupt organized crime
Blockchain analytic tools offer opportunities to investigate and disrupt organized crime networks and to recover illicit assets. With the right technology, training and data, law enforcement agencies can track fund flows over multiple blockchains, helping to:
- Identify individuals behind the scheme;
- Broaden investigations to other individuals or companies, potentially revealing new leads and uncovering wider organized crime networks;
- Generate intelligence on how the crypto assets are being laundered, enabling the development of smarter strategies and tactics;
- Gather evidence of illicit activity for use in court that, due to the nature of the blockchain, cannot be destroyed and can be seen and interrogated by all;
- Confiscate illicit assets, even if the individuals behind the scheme cannot be identified or are hiding in a jurisdiction from which they cannot be extradited.
4. Raise crypto literacy through capacity building and clear communication
The technical language and acronyms that have evolved around the crypto assets industry are a major barrier to addressing crypto-related crime and money laundering.
However, it is the ordinary user that if often the victim in a hack or crime. It makes sense then that these users need to understand the risks related to investing in crypto assets.
Moreso, law enforcement teams must find ways to explain clearly the methods used in crypto crimes to their colleagues, and international counterparts and to the courts.
It is recommended that:
- Law enforcement officers should use free online courses and resources, events, seminars, and workshops to broaden and share their knowledge and become familiar with the terminology around crypto assets and the different ways of storing them;
- Standard operating procedures are developed – such as the description of what needs to be done to preserve digital evidence, how to locate crypto assets, and the correct way to secure them once they are seized;
- Prosecutors make ample use of graphs and visualization tools to illustrate the flow of money through wallets and addresses.
5. Increase public-private cooperation
There are little sectors that benefit more from public-private cooperation than crypto, and in several ways:
- Leverage private blockchain analytic and asset tracing tools
These companies already have high-powered investigative features and analytical capacity to trace funds laundered across multiple blockchains using different obfuscation techniques, which cannot be developed in-house for most law enforcement agencies.
- Make use of existing data through information sharing
Specialized blockchain companies can draw and share valuable insights into crypto-related money laundering typologies from the vast amounts of data they hold and analyze to help to trigger investigations and inform more targeted strategies.
- React to crimes with increased speed and efficiency
Public-private cooperation would increase speed and efficiency. Closer collaboration with crypto asset service providers can help to speed up the execution of European Investigation Orders, freezing orders, and mutual legal assistance requests.
What crypto businesses and enforcement agencies should do to combat crypto crime and money laundering
- Use analytics tools to maximize outcomes
Blockchain technologies can “offer an unprecedented opportunity to investigate organized crime and money laundering networks and recover stolen funds.
- Get access to blockchain data
Use the valuable insights into crypto-related money laundering typologies that private blockchain hold to analyze inform investigations and understand the opposition.
- Train their teams
Training teams to understand basic concepts and use blockchain technology is vital to tackling crime and laundering illicit money.
To keep up with evolving crime typologies and technology, businesses and enforcement agencies must invest in training to learn how to investigate multi-blockchain transactions, monitor and track cryptocurrencies for potential risk, and build visualizations to support investigations.
In line with these recommendations, Crystal provides specialist training courses that demonstrate how to apply investigation techniques to identify illicit activities on the blockchain.
Crystal’s School of Crypto Compliance and Investigations can help you become an expert in this field. The training we provide will help you become more knowledgeable about cryptocurrencies and the industry. It will allow you to identify the trends and risks affecting it.
For any training-related questions, please contact us at: [email protected].
