TO WHAT EXTENT DOES THE USE OF DIGITAL CURRENCIES INCREASE THE CHALLENGES FACED BY REGULATORS OF MONEY LAUNDERING AND HOW CAN THESE REGULATORS MOST EFFECTIVELY COMBAT MONEY LAUNDERING IN THE ONLINE ERA GIVEN THE UNCLEAR STATUS OF, AND LACK OF UNIFORMITY IN APPROACH TO, DIGITAL CURRENCIES?

Abstract

This project considers money laundering in the context of digital currencies, evaluating the issues and proposing a solution. The key focus is on how far the use of digital currencies may be seen to heighten the challenges experienced by regulators seeking to deal with money laundering in an online environment, particularly in light of the fact that there is a fragmented approach amongst States to digital currencies, which are not considered as legal tender. The work evaluates the extent to which the design of digital currencies may pose issues in this regard, considering the anonymity associated with a transnational currency which operates outside of regulatory frameworks, and analysing how digital currencies have as such been attractive to money launderers. The work evaluates the money laundering cycle in order to determine that the issues posed by digital currencies in terms of money laundering are not novel, but rather make money laundering easier to commit and more difficult to combat. As such, the work recommends that whilst regulation is indeed needed, this regulation should incorporate digital currencies into existing money laundering frameworks. In this regard, the work also demonstrates the importance of international co-operation in order for money laundering through digital currencies to be effectively combated, because digital currencies are inherently transnational, in the same manner that money laundering as a crime is also global. Indeed, it is argued that it is fundamentally unsatisfactory for there to be a consistent international framework through which money laundering is targeted in the general sense, and a failure to apply that framework to money laundering through digital currencies. It is proposed that treating digital currencies as legal tender would more easily enable these frameworks to be applied to digital currencies, given issues with current regulatory approaches which are evaluated, and which apply to digital currencies only in some respect such that their use may still evade the financial regulator.