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Criminality and Crypto

Hailey Lennon reflects on cryptocurrency’s reputation for being a haven for criminal activity and weighs in on why it is not a significant issue
<v ->Hi everyone.</v> My name is Haley Lennon. I am a partner at Anderson Kill. We’re a law firm based primarily in New York and DC and I’m associated with the San Francisco office. We have a very strong practice that focuses on cryptocurrency and FinTech regulation, software development, IP issues. We’ve been focused a lot on the space and most of our partners have been practicing in this space for five to six years. I also am a contributor for Forbes magazine, where I write about cryptocurrency, usually focused on regulation and just news happening in the space. Today I wanted to touch base touch a little bit on this idea of cryptocurrency used more for money laundering and terrorist financing, then dollars.
I hear this false narrative a lot and it’s actually an article or topic I wrote about an article for Forbes about because it’s one I’m very passionate about. I’ve been in the space since 2014. I started at Silvergate Bank, which is a banking partner in the space that actually provides bank accounts to cryptocurrency companies. Many cryptocurrency companies for years have had a hard time obtaining bank accounts with traditional financial institutions, even just to pay rent and pay payroll. Because of this misconception that a cryptocurrency and Bitcoin is used for money laundering and terrorist financing.
Now, the first thing I wanna point out is that when a new technology comes about oftentimes it is initially used more by criminals than the general public. And that’s because it is ahead of its curve in terms of regulators and law enforcement understanding the technology and understanding how to regulate it and how to mitigate any increased concerns around money laundering or illicit activity, criminal activity. The same can be, the same comments that can be made about cryptocurrency and Bitcoin in the early days can be made about things like the internet in the early days. Very early on when the internet was created, it was primarily used for criminal activity, pornography and things of that nature.
The idea that cryptocurrency or new technologies in general are only used or primarily used for money laundering or elicit activity is not true. And all technology needs time to find its use case, find its adoption and really fulfill all the potential that this new technology has. The second thing that I always point out is that there are companies like Elliptic or Chainalysis that actually do blockchain monitoring. So before cryptocurrency was created, banks and other traditional financial institutions would do monitoring on the dollar or Fiat side of the transaction. They would see, where are the dollars coming from? Who is that individual? What is the source of funds of those dollars and where are they going?
They would look for suspicious activities. The same thing is true for the cryptocurrency side. Companies like Elliptic and Chainalysis and other companies and open source protocols actually allow companies to look at where Bitcoin and cryptocurrency is coming from? Who the person is or where their wallet address is located? And where the cryptocurrency is going? If anyone’s interested in this topic more I would suggest that you look into companies like Elliptic and Chainalysis. They do really interesting webinars where they actually see how the blockchain can be used to not only track and understand the movement of currency but can actually be used by law enforcement and other agencies to uncover crimes and convict individuals of wrongdoing.
Chainalysis specifically does a report every year. And they have released their 2021 report which actually shows that the amount of criminal activity associated or represented by cryptocurrency transactions has fallen dramatically in the last two years. In 2019, 2.1% of all cryptocurrency transactions were tied to some sort of criminal activity. That is 2% of all the cryptocurrency transactions out there. And that represents $21.4 billion worth of cryptocurrency transfers, which is no small amount. But it’s noteworthy that a year later that the share of cryptocurrency connected to criminal activity had actually fallen to just 0.34%. Only $10 billion in transaction volume. So as you can see in two years, cryptocurrencies use tied to criminal activity has decreased dramatically.
And if you go and compare that to dollars, according to the UN, it’s estimated that between two and 5% of the global GDP is connected to money laundering and illicit activity. Now I know I’m throwing a lot of numbers out there but that means that according to the UN around 1.6 to $4 trillion is tied to money laundering. And that’s even given that traditional financial institutions are working to prevent and do anti money laundering and prevent the use of dollars for elicit activity. There is no way to get that number for dollars or cryptocurrency to zero. There is no way to a 100% prevent money laundering or illicit activity.
But what these numbers show is that the amount of dollars being used for criminal activity compared to that of cryptocurrency far outweighs it and dollars in fact are still the leading use for people looking to launder money or commit illicit activity and crimes. And so as I said, I wrote an article about this. It’s something I’m really passionate about because I think that this false narrative of cryptocurrency being used only by criminals or primarily for money laundering really takes away from the true potential of cryptocurrency as this new innovative technology that can completely transform the financial industry, our relationship with money, our reliance on the government or centralized banking systems to control monetary policy.
And also just to open up the world to a different way, to transmit money, a different way of individuals to invest and grow a portfolio outside of the stock market and traditional finance. So those are the things that come to mind for me when I think about what cryptocurrency is used for. So as you can see, the potential for cryptocurrency in my mind is limitless. And the amount that cryptocurrency is actually used for a terrorist financing and money laundering is relatively low. I think that as people continue to embrace this technology and adoption continues to grow, the use cases for cryptocurrency and blockchain will continue to become more obvious and more accepted by the general public.
It’s something that I’m really passionate about. If you’re interested in more information, I’ve written about this topic and many others through Forbes and I’m happy to connect offline and discuss this more. Thank you for your time.

Hailey Lennon, Partner at Anderson Kill, reflects on cryptocurrency’s reputation for being a haven for criminal activity.

Most new technology, like the early internet, is often used for illicit activity, until governments develop plans to deter criminality. From just 2019 to 2021, the percentage of cryptocurrency transactions tied to criminal activities has fallen significantly. In practice, cryptocurrency may be much less attractive to criminals than cash.

Discussion: What had you previously heard about criminality and cryptocurrency? Both Diego and Hailey touched on how in comparison to cryptocurrency, a greater proportion of fiat money is used to support criminal activities such as money laundering and terrorist financing; do you find this surprising? What would you tell others about what you’ve learned about the legality and relative safety of cryptocurrency?

Optional: Read more from Hailey on the narrative of Bitcoin’s role in criminal activity

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