Government Report Suggests Tightening Regulations on Crypto ATMs

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Crypto payments are increasingly being used to facilitate the illicit trafficking of people and drugs, and the Government Accountability Office (GAO) is blaming crypto kiosks.

In a new study released Monday, the Government Accountability Office — a government agency that provides audit and investigative services to Congress — highlights that kiosks, also called crypto automated teller machines (ATMs), were partly responsible for this increase because the machines are less regulated than cryptocurrency exchanges and transactions. . More difficult to trace.

“as [crypto] The report said market use is expanding, and FBI officials said they expect to see an increase in the use of virtual currency kiosks for illicit purposes, including human and drug trafficking.

The agency suggested that the IRS and Financial Crimes Enforcement Network (FinCEN) work together and take a stronger hand in regulating the kiosks.

The report examined the use of cryptocurrencies in global smuggling and how US agencies, including the US Postal Service (USPS), Immigration and Customs Enforcement (ICE) and the Internal Revenue Service (IRS), are tackling the rise in crypto crime.

The Government Accountability Office also looked at the challenges agencies face in combating crypto crime and found that a pervasive lack of information, particularly about crypto kiosks (often referred to as crypto ATMs), was interfering with law enforcement’s ability to identify and stop criminals.

Findings from the Government Accountability Office (GAO) that crypto-enabled crime is on the rise conflict with a new report from crypto research firm Chainalysis, which finds that although crypto crime is increasing in size, it is It hit an all-time low as a percentage of all blockchain transactions in 2021 In other words, as cryptocurrencies become more popular, crypto crimes will continue to rise, but the growth in crypto transactions above the plate goes beyond illicit activity.

Read more: Crypto crime hits all-time high of $14 billion in 2021 as prices soar: Sequence analysis

Trafficking in Human Beings

The GAO report found that cryptocurrency can be used as a payment method for human trafficking — the umbrella term for both labor trafficking and sex trafficking — but is more common in payments to sex traffickers.

Citing research from Polaris, a US-based nonprofit that seeks to end human trafficking, the Government Accountability Office report said that of the 40 online “commercial sex marketplaces” that “can be used to facilitate sex trafficking,” more than half (23 of 40) Accept cryptocurrency as a form of payment.

The growing adoption of crypto payments for online sex marketplaces, according to the Government Accountability Office, can be attributed to difficulties accepting credit and debit card payments — something seen last year when sex-focused subscription service OnlyFans decided to ban pornography after facing pressure from banks. The decision was eventually reversed after OnlyFans received backlash from fans.

Read more: OnlyFans shows how the banking system is politicized

drugs smuggling

The Government Accountability Office report said that after the demise of the online dark web market Silk Road in 2013, the overall dark web market for illegal drugs has become more stable and more difficult for law enforcement to detect due to the proliferation of smaller markets.

The Government Accountability Office report reads: “When law enforcement shuts down one market, criminals can easily move operations to other established markets.”

This does not mean that the government is unable to confiscate cryptocurrencies used for drug smuggling. In 2021 alone, the IRS seized $3.5 billion in cryptocurrency — $1 billion of which was tied to the Silk Road.

During the investigation, the Government Accountability Office found that of all ICE investigations involving cryptocurrency, 36% involved drug trafficking. For the IRS, a quarter of its crypto-related investigations were drug-related. As for the USPS, 85% of the agency’s crypto seizures involved drug smuggling.

Money laundering

According to the Government Accountability Office report, drug cartels and transnational criminal organizations (TCOs) are “increasingly using virtual currency due to its anonymity and as a more effective means of moving money across international borders.”

Although the report highlights that the most common methods of money laundering – wholesale cash smuggling and trade-based money laundering – remain unchanged, crypto has become a more popular way to move money across borders without attracting the attention of law enforcement authorities.

The Government Accountability Office attributed the growing popularity of crypto-money laundering to less regulated kiosks, which offer more anonymity-enhancing features.

“Money holders are depositing large amounts of money from illegal drug proceeds into a kiosk to convert the value into virtual currency,” the report stated. “Once the illicit proceeds are in this model, the funds can easily be transferred to the wallet of another virtual currency user, thus reducing the risks associated with transferring the pooled currency.”

suppression stalls

The specific problem of the GAO with crypto kiosks is that although kiosk operators must register with FinCEN, they do not have to regularly update any law enforcement agency about the location of their kiosks. This “limits the ability of federal agencies to locate kiosks in areas designated as high risk for financial crime.”

By tightening regulations for these crypto kiosks, the Government Accountability Office believes that law enforcement will be able to obtain improved information and be better able to identify “potentially illegal transactions.”

The Government Accountability Office has made two recommendations to the IRS and FinCEN on how to improve the regulation of crypto kiosks.

The report suggested that the director of FinCEN and the IRS commissioner simultaneously review the requirements for registering a financial services business (MSB) for crypto kiosks and other exchanges, and consider new requirements for kiosk operators to regularly update law enforcement addresses on their physical kiosks.

According to the Government Accountability Office, the IRS and FinCEN agreed with the recommendations.

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