According to research conducted by Dutch financial newspaper Het Financieel Dagblad (FD), at least three criminal cases pertaining to money laundering with bitcoin are scheduled for 2017. Additionally, the FIOD — the investigative arm of the Dutch tax authority — wants to lower the bar for prosecution of unlicensed bitcoin traders. The FIOD will also try to have mixing services recognized as money-laundering operations.
The Challenge of Anonymity
Bitcoin’s relative anonymity (sometimes referred to as pseudonymity) and censorship resistance have made the digital currency a popular means of exchange on darknet markets likeAlphabay and Silk Road. Interpol believes that more than 40 percent of online transactions for illegal ends is done with bitcoin.
Darknet market merchants typically do exchange their earned bitcoins for fiat currencies. While trading bitcoin for fiat is in and of itself not illegal, most exchanges apply strict anti-money laundering (AML) and know your customer (KYC) standards. This is usually requested from the financial institutions and banks that they work with. Darknet merchants, therefore, often prefer to exchange their bitcoins at what FD refers to as “bitcoincashers”: exchanges and dealers that do not comply with such rules.
The FIOD is now attempting to make prosecution of these bitcoincashers much easier. The tax authority wants the Financial Intelligence Unit (FIU) to recognize illegal bitcoin trade as a type of money laundering. That would allow detectives to start an investigation without first needing to prove reasonable cause. A spokesperson for the FIOD told FD that it expects such recognition to be granted later this year.
Additionally, FD reports that the FIOD wants to have bitcoin mixers recognized as money laundering indicators as well, though it’s unclear how far this regulation would reach. It would presumably apply to centralized mixers like bitmixer.io, which exchange bitcoins for different bitcoins to break the path to any particular piece of currency. But trustless mixing services, like those hostingValueShuffle or TumbleBit servers, may become a target, too.
Pending Cases Before the Courts
At least six bitcoincashers will appear before Dutch courts this year, divided over three different cases. The first of these are two men accused of drug dealing, money laundering and partaking in a criminal organization. Public prosecutors suspect these dealings involved about $2.6 million [€2.4 million] worth of proceeds from illegal activities. The second case concerns four individuals suspected of running an illegal bitcoin exchange that guaranteed anonymity to its users. The third case is part of a larger international investigation on money laundering.