Privacy Coins Being Used For Money Laundering By Japanese Organized Crime Gangs

Reports indicate that organized crime outfits in Japan are turning to digital currencies in order to launder money due to the anonymity they provide. Compounding the problem are the different regulations which exist across international jurisdictions and which are hampering efforts to curb money laundering. In one case investigated by Japan’s The Mainichi daily, amounts totaling 30 billion Japanese yen were funneled via a couple of exchanges based overseas in 2016.

Though the government of Japan has recently made efforts aimed at strengthening anti-money laundering measures, these have been limited to the boundaries of the country, lending credence to the view that there will be no solution to the problem if international cooperation is lacking.

In their money laundering efforts the organized crime groups prefer virtual currency exchanges which do not ask for identification documents such as passports or national identity cards before registering an account. The organized crime groups then convert fiat currencies to virtual currencies such as ethereum (ETH) and bitcoin (BTC). These digital currencies are then converted to what are popularly referred to as privacy coins due to their anonymity and confidentiality and these include Monero (XMR), Dash (DASH) and Zcash (ZEC).

With these virtual currencies the trading logs that are recorded on the blockchain are never made public like in the case of bitcoin. Additionally the identity of the sender and receiver can remain anonymous. Previously the three privacy coins were listed on Japanese virtual currency exchange Coincheck but after the exchange was acquired by Monex Group, the three were delisted.

While Japan’s Payment Services Act requires digital currency exchanges operating in the country to register with Financial Services Agency besides requiring users to offer proof of identity but the laws are toothless and helpless once the funds leave the country.

The use of cryptocurrencies to aid money laundering is not restricted to Japan though. Last month the members of the EU parliament voted in favor of an amendment to the Anti-Money Laundering Directive of the continental body aiming to regulate virtual currencies more closely. Primarily the amendment sought to end the anonymity that is synonymous with cryptocurrencies by introducing due diligence controls such as identity verification procedures. Member states of the European Union will have one and a half years to adopt the new legislation into respective national laws.