Japan Faces International Virtual Currency Money Laundering Problem

According to United Nations Office on Drugs and Crime between 2% to 5% of the global gross domestic product (about $800 billion to $2 trillion) is laundered on an annual basis. With digital currencies money tax evaders, organized criminal groups, and others now have a new easier way of cleaning their money. In Europe it is estimated by the police agency of the continent Europol, that between 3% and 4% of the annual criminal takings in the region are laundered via virtual currencies. And in the United States the Drug Enforcement Administration is of the view that the use of virtual currencies by international gangs is increasing.

The problem is however not limited to Europe and the United States. In Japan one of the country’ oldest and most influential daily, The Mainichi, has reported that over $270 million has been laundered by organized criminal entities via digital currency exchanges since 2016. The digital currencies of choice for the Japanese organized crime syndicates are the privacy coins such as Dash (DASH), Zcash (ZEC) and Monero (XMR). The organized crime syndicates prefer cryptocurrency exchanges which are not strict with verifying identities or even asking for identifying documents when registering accounts.

Initially Japan’s digital currency exchange Coincheck was the only platform in the country which handled the three privacy coins. Following the theft of approximately $534 million belonging to customers that was stolen from the exchange a major brokerage stepped in and discontinued Zcash, Dash and Monero transactions.

Japanese organized crime syndicates first convert their fiat currencies into Ethereum (ETH) or bitcoin (BTC). The virtual currency holdings are then distributed to numerous other accounts in crypto exchanges that have lax rules. From there the holdings are then converted into Monero, Dash and Zcash. These digital assets are then sent to Russia where they are converted into fiat currencies. While Japan introduced the Payment Services Act last year in April with a view to regulating cryptocurrency exchanges, the law is helpless with regards to the virtual currency exchanges that are based overseas as once the money leaves the country there is no telling where it eventually ends up.