Can economic sanctions lead to fraud? Nations might turn to virtual currencies if slapped with restrictions

Milind Tiwari, Adrian Gepp, Kuldeep Kumar

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Abstract

[Extract] Countries routinely use sanctions on nations to deter and penalize bad behavior. But what if economic restrictions cause criminals to seek the anonymity of alternative currencies? We possibly could see increases in fraud, money laundering and terrorist financing. Or not. The jury’s still out. Here’s what fraud examiners and law enforcement can do as nations move to their own parallel virtual and traditional monetary systems.

The perpetrator of an $80 million Ponzi scheme needed to launder his dirty money, so he funneled the cash through a Denver online virtual currency exchange backed by established American venture-capital firms, according to a Wall Street Journal investigation. (See “How Dirty Money Disappears Into the Black Hole of Cryptocurrency,” by Justin Scheck and Shane Shifflett, The Wall Street Journal, Sept. 28, 2018.)

Governments and law enforcement agencies have long been concerned that virtual currencies can help facilitate money laundering, fraud and terror financing. They’ve believed that virtual currencies’ anonymity and the absence of middlemen make them attractive instruments to finance crimes with ease. But is this concern justified? The debate continues. One school of thought views virtual currencies as an effective terror-funding tool, for example. But another perceives them as ineffective because terrorists need specialized training to use them, and they’re limited by virtual currencies’ negotiability and volatile risk.
We need to understand this debate on terror financing via fraud and money laundering in light of the increase in U.S., EU and U.K sanctions on several countries in response to bad behavior, including human rights violations, support of terrorism, and inciting of violence and unrest. Nations often try to circumvent sanctions, limit access to their currencies from outsiders and avoid working with well-established financial institutions.
Original languageEnglish
JournalFraud Magazine
Volume34
Issue number3
Publication statusPublished - May 2019

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