Why Crypto Was the Perfect Tool for Criminals | January 2024

January 2024 | Volume 15, Issue 6

Read the full article from CNN.

The recent news of money laundering charges against crypto exchange Binance and its CEO, Changpeng Zhao, sent shockwaves through both financial markets and crypto consumers alike. And understandably so. Before Binance’s settlement with U.S. authorities, the company represented 60 percent of the market for crypto spot trading. And Zhao himself, as the Wall Street Journal noted, was the so-called “king” of crypto.

No more. With U.S. authorities slapping more than $4 billion in penalties against the company, Binance risks becoming a shell of its former self. And Zhao joins a roster of once-feted crypto chiefs who have since fallen from grace.

But while many pieces of analysis have focused on what this means for the future of the crypto industry itself — or whether the industry can even recover from such stupendous scandals — observers risk missing the forest for the trees about what good news this settlement is. American authorities’ moves against Binance and Zhao illustrate that Washington is finally taking the threat of trans-national money laundering in crypto seriously — and that the U.S. is finally focused on tackling one of the favorite tools that kleptocrats, oligarchs and dictators around the world rely on to launder their wealth, evade sanctions and bankroll everything from terrorism to anti-democratic crusades.

Just look at what Binance and Zhao were accused of, and who they are accused of enabling.  American authorities alleged that the crypto giant allowed terrorist financing for Hamas’s Al-Qassam Brigades, Al-Qaeda and ISIS, along with child sex abuse and narcotics transactions. American authorities uncovered networks connected to Russian illicit finance, as well as to sanctioned Iranian entities.

Taken in total, the details are shocking. But for those familiar with the history of modern money laundering, they’re hardly surprising. Binance may be the biggest crypto house exposed, but it is simply the latest in a long line of financial institutions whose lack of money laundering oversight — and willingness to look the other way — has drawn in staggering amounts of illicit wealth and attracted the world’s leading criminal rings and kleptocratic regimes.

If anything, this is a pattern that we’ve seen time and again over the past few decades, and one that’s hardly unique to crypto. Whenever an industry emerges without sufficient money laundering controls, it begins sucking up illicit finance, laundering untold wealth in the process — and often leading to spectacular scandal as a result.

Take the American banking sector, for instance. In the late 20th century, U.S. banks were an effective free-for-all, with no internal money laundering controls — giving everyone from dictators to terrorist organizations a reason to turn to US banks to hide and launder their wealth. It was only after the September 11 attacks — and questions about how the hijackers used the American banking system to finance their attack — that legislators passed the Patriot Act, which effectively cleaned up US banks, forcing them to conduct basic due diligence on customers’ funds.

Or look at American real estate. Thanks to an exemption from money laundering checks — an exemption that was supposed to be “temporary,” but which has remained in place for more than two decades — U.S. real estate has ballooned into a go-to vehicle for the world’s leading oligarchs and kleptocrats. Over and again, everything from Manhattan high-rises to Malibu beachfronts to Midwest manufacturing plants have allegedly housed illicit wealth, easily and anonymously. Only in recent years have U.S. officials finally moved toward cleaning up the industry.

Other industries, from private equity and hedge funds to auction houses and the art market, have followed similar patterns. And now, thanks to U.S. authorities’ actions, it appears to be crypto’s turn. 

In a certain sense, this was always inevitable. Crypto’s ethos, after all, wasn’t just to make transactions more secure, but also to offer anonymity to anyone who wanted it, all as a means of evading those trying to track funds. And to be sure, many populations targeted by repressive governments rely on crypto to bankroll their efforts and deal with crises.

But crypto was also, in many ways, the perfect tool for kleptocrats and criminals trying to dodge sanctions and duck investigators. (As one Binance staffer wrote, the company should have a banner that says, “is washing drug money too hard these days - come to Binance we got cake for you.”) And since dirty money is always looking to be washed clean, it’s no surprise that the titan of the crypto world allegedly attracted the most nefarious groups and regimes around the world.

Now, though, those heady days appear to be ending. Like banks, real estate and more before it, the best days of the crypto industry as a haven for money laundering may yet be behind it. All it took was for American authorities to finally recognize that the industry’s transformation into a sieve for illicit wealth made it the best friend for kleptocrats and terrorists around the world.