Certified
CertifiedCompliance
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ininCryptocurrency
CryptocurrencyFinancial
Financial
Crimes
Crimes(CCPC)
(CCPC)
Module
Module 2: Laws
5: Risks andand
Redregulations
Flags of crypto
Module
Moduleoverview
overviewand
andlearning
learningobjectives
objectives
CCPC – module 2 Laws and regulations
Module overview
Topics
1. Introduction to the Risks of crypto
2. Money Laundering
3. Terrorist Financing and DarkNet
4. Hacking and Cybercrime
5. Fraud & Market Abuse
6. Tax evasion and tax avoidance
7. Sanctions
8. Operational Risks & other risks
CCPC – Module 5: Risks and Red Flags of crypto 2
Module overview
Learning objectives
➢ Understanding a lot of different risks that can be associated with
crypto
➢ Getting to know the reasons for using crypto in financial
economic crime
➢ Understanding why it can be so difficult to mitigate some of
these risks
➢ Understanding that more regulation and supervision is needed
to make it more difficult for criminals and to provide guidance
for virtual asset service providers, financial institutions and
companies
CCPC – Module 5: Risks and Red Flags of crypto 3
A. Introduction to the risks of crypto
CCPC – Module 5: Risks and Red Flags of crypto 4
Risks and statistics
• Crime numbers of crypto range from 0.15 % to 46 (!) %
• Criminals will always find ways to evade surveillance
• Sell crypto in cash
• Peer-to-peer?
• Spend crypto at companies
• Dark number of crime
Source: Chainalysis
Source: Ciphertrace
CCPC – Module 5: Risks and Red Flags of crypto
B. Money Laundering
CCPC – module x 6
3 or 4? Phases of money laundering
1. Placement phase
2. Layering phase
3. Integration phase
Exchange Bank
4. Justification phase
Source: FBI
CCPC – Module 5: Risks and Red Flags of crypto 7
Money Laundering
Bitcoin ATMs
Source: Department of Justice
Mining
Peer-to-peer
Source: Decrypt
Source: Comply Advantage CCPC – Module 5: Risks and Red Flags of crypto
Bitcoin Mixers
Money Laundering
Source: Europol
Bitcoin Mixers
Source: Department of Justice
Non-Fungible Tokens - washtrading
Source: CoinTelegraph CCPC – Module 5: Risks and Red Flags of crypto
C. Terrorist Financing and DarkNet
CCPC – Module 5: Risks and Red Flags of crypto
Terrorist Financing
Source: TheDiplomat
Source: Memri
Source: U.S. Congress
CCPC – Module 5: Risks and Red Flags of crypto
Terrorist Financing
Source: Wired
Source: [Link]
Source: CoinDesk
CCPC – Module 5: Risks and Red Flags of crypto
DarkNet
Source: Coindesk
Source: [Link]
CCPC – Module 5: Risks and Red Flags of crypto
D. Hacking and cybercrime
CCPC – Module 5: Risks and Red Flags of crypto 14
Ransomware
Ransomware
Finding crypto crime
Source: New York Times
CCPC – Module 5: Risks and Red Flags of crypto
Hacks
Source: cointelegraph
Source: cointelegraph
Source: Reuters Source: 9th of February 2021 Nikkei Asia
Ransomware - chainhopping
Ransomware - peelchain
x 1 3
2
Source: Maltego
CCPC – Module 5: Risks and Red Flags of crypto
Cybercrime
Cryptojacking
Source: Cointelegraph
Identity fraud
Phishing Source: CNBC
Source: Blockworks
CCPC – Module 5: Risks and Red Flags of crypto
E. Fraud and Market Abuse
CCPC – Module 5: Risks and Red Flags of crypto 18
Market Abuse
Definitions of a ‘rug pull’:
- Take out all the money;
- Do not allow selling of coins;
- Hyping a coin and sell everything.
Source: Sportsfindings
Source: MarketWatch
Source: SEC
Source: Twitter
CCPC – Module 5: Risks and Red Flags of crypto
Market Manipulation
Source: CNBC
Source: Reuters
Source: Twitter
Source: Twitter
CCPC – Module 5: Risks and Red Flags of crypto
Pump and dump schemes
1. The organizer sets the time and determines the coin;
2. The name of the coin will be announced;
3. At the start of the pump everybody will buy;
4. The organizer will start to dump its coins.
Pump and dump (XRP)
Source: [Link] Source: Telegram
CCPC – Module 5: Risks and Red Flags of crypto
Pump and dump, Scams and Rug pulls
Source: Time
Source: 18 April 2022 SEC
Ocean Cleanup Coin
Source: AFM
Source: Coindesk
Source: Twitter Source: CNBC
CCPC – Module 5: Risks and Red Flags of crypto
F. Tax evasion and tax avoidance
CCPC – Module 5: Risks and Red Flags of crypto 23
Tax evasion
Concealing income or information from tax authorities, which is illegal
and can lead to fines, penalties and prison sentences
Examples:
• Not reporting capital gains from sales or other dispositions of crypto.
• Under reporting capital gains from sales or other dispositions of crypto.
• Not reporting additional income received in cryptocurrency.
• Not reporting business income received in cryptocurrency.
• Not reporting wages paid in cryptocurrency.
CCPC – Module 5: Risks and Red Flags of crypto
Tax evasion
Souce: CNBC
Source: OECD
Source: Fortune
Source: MicroStrategy
CCPC – Module 5: Risks and Red Flags of crypto
Tax avoidance
Legally reducing your taxable income
Examples:
• Offshoring: Shell companies
• Retirement savings
• Claiming capital allowances on things used for business purposes
• Standard deductions
CCPC – Module 5: Risks and Red Flags of crypto
CCPC – Module 5: Risks and Red Flags of crypto
G. Sanctions
27
Sanctions
Source: U.S. Department of the Treasury
Source: [Link]
Source: [Link]
CCPC – Module 5: Risks and Red Flags of crypto
Sanctions
Source: Bloomberg
Source: CoinTelegraph
Source: BBC
CCPC – Module 5: Risks and Red Flags of crypto
Sanctions
Source: TRM Labs
Source: blockchaintrend
Source: FINCEN
Source: Bitcoinist
CCPC – Module 5: Risks and Red Flags of crypto
H. Operational Risk and other risks
CCPC – Module 5: Risks and Red Flags of crypto 31
FOMO, gambling and investor protection
Source: 15 January 2022 The Guardian
Source: CNN
CCPC – Module 5: Risks and Red Flags of crypto
Human mistakes
Source: BusinessInsider
Source: CNBC
CCPC – Module 5: Risks and Red Flags of crypto
Corruption
Source: Bloomberg
Source: [Link]
CCPC – Module 5: Risks and Red Flags of crypto
Key takeaways
✓ Many different risks can be associated with crypto and the lack of crypto regulations leads to
challenges in the sufficient mitigation of these risks
✓ According to blockchain analytic companies the use of crypto for criminal activities seems to be
relatively low as a percentage of total transactions. However, they do not take into account the dark
number of crime.
✓ There are 3 or four phases of money laundering with crypto and criminals often use many layering
techniques like peel chain and chain hopping or use Bitcoin mixers or privacy coins like Monero to try
to hide the source of funds
✓ The use of crypto in terrorist financing still seems to be limited according to several reports, even
though it looks like they are only looking at the larger terrorist organisations. Reason might be that
they are still relying on traditional means of funding which still seems to function quite well.
✓ Hacking, cybercrime and fraud remain the most important risks with crypto and this will not change
until there is regulation in place to make these acts illegal and proper supervision is in place.
✓ Sanction evasion with crypto is possible but not on the scale mentioned by the European Union or
the United States
✓ Consumer protection is needed as more and more people see investing in crypto as gambling and
are not aware of the risks involved.
CCPC – module 5 Risks and red flags of crypto