Opinion: Unveiling the Dark Side of Cryptocurrency: Enabling Criminals and Kleptocrats

From the recent news of money laundering charges against crypto exchange Binance and its CEO, Changpeng Zhao, the impact was felt throughout financial markets and among crypto consumers. Prior to Binances settlement with US authorities, the company held a 60% share of the market for crypto spot trading, with Zhao being labeled as the "king" of crypto, as noted by the Wall Street Journal.

Casey Michel

Written by Versha Sharma, Binance faces the risk of significantly diminishing in stature as the US authorities impose penalties exceeding $4 billion on the company. As a result, the company's founder, Zhao, now joins the ranks of previously celebrated cryptocurrency leaders who have experienced a downfall in reputation.

However, amidst the focus on the future of the crypto industry and whether it can bounce back from such scandals, many fail to recognize the positive impact of this settlement. The actions taken by American authorities against Binance and Zhao demonstrate a growing seriousness in addressing the threat of trans-national money laundering in the crypto industry. This showcases a shift in the US's focus towards tackling the favored tools used by kleptocrats, oligarchs, and dictators worldwide to launder their wealth, evade sanctions, and fund criminal activities ranging from terrorism to anti-democratic causes.

The accusations against Binance and Zhao shed light on the illicit activities they are alleged to have enabled, including terrorist financing for Hamas's Al-Qassam Brigades, Al-Qaeda, and ISIS, as well as involvement in child exploitation and narcotics transactions. American authorities have also revealed networks linked to Russian illicit finance and sanctioned Iranian entities.

The collective findings are truly astounding. However, for those well-versed in the history of modern money laundering, they come as no surprise. While Binance may be the largest cryptocurrency platform implicated, it is merely the most recent addition to a lengthy list of financial institutions whose failure to properly monitor money laundering and their readiness to turn a blind eye have resulted in the influx of enormous sums of illegal wealth and the attraction of the world's most prominent criminal organizations and corrupt regimes.

Sam Bankman-Fried leaves the United States Courthouse in New York City, U.S., July 26, 2023.

Amr Alfiky/Reuters

The SBF verdict highlights a recurring pattern that has been seen repeatedly over the last few decades, not unique to the crypto industry. When an industry lacks adequate money laundering controls, it tends to attract illicit finance, resulting in the laundering of significant wealth and often leading to scandal.

In the late 20th century, the American banking sector operated without effective money laundering controls, allowing everyone from dictators to terrorist organizations to use US banks for hiding and laundering their wealth. However, after the September 11th attacks and scrutiny over the hijackers' use of the American banking system, legislators passed the Patriot Act to clean up US banks and enforce basic due diligence on customers' funds.

Similarly, American real estate has seen an increase in illicit wealth due to an exemption from money laundering checks that was meant to be temporary but has remained in place for over two decades. This has led to the world's leading oligarchs and kleptocrats using US real estate as a vehicle for laundering money. Only recently have US officials taken steps to address this issue and clean up the industry.

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This development was perhaps inevitable. While the initial purpose of cryptocurrencies was to make transactions more secure and offer anonymity, it has also become a tool for evading financial tracking. Repressive governments and criminal elements have taken advantage of this, using crypto to fund their activities and evade sanctions and investigations. As a result, the top players in the crypto world have allegedly attracted some of the most corrupt and nefarious groups and regimes globally.

However, it seems that those exciting times are now coming to an end. Just like banks and real estate before it, the crypto industry's golden age as a money laundering haven may be over. The industry's role as a conduit for illegal wealth has been recognized by American authorities, making it a prime ally for kleptocrats and terrorists worldwide.