Cryptocurrency and Money Laundering: How Does it Work?

Much like driverless cars, cryptocurrencies, also known as virtual or digital currencies, are said to be the way of the future. Cryptocurrency, the most popular of which is Bitcoin, is a medium of exchange. Instead of paper currency, it uses cryptography to secure and verify transactions. Cryptography is also used to create new units of this type of currency as well. Basically, cryptocurrencies are limited database entries that no one can modify until very specific conditions are fulfilled. In addition to Bitcoin, there are many others now such as Dash, Peercoin, Ether, Ripple and Litecoin.

cryptocurrency. bitcoin with us dollars and calculator

Cryptocurrencies do offer some benefits. Since they are digital, they cannot be counterfeited like paper money. There are no fees with cryptocurrency as there might be with a credit card or bank transaction. In addition, cryptocurrencies offer protections from identity theft unlike credit cards where you give someone access to your full credit line even if the transaction might only be for a smaller amount. With cryptocurrency, you can send precisely the amount you want to a merchant or recipient without providing them with all of your credit information.

The Issue of Money Laundering

However, not every system is perfect. Despite all of these benefits that cryptocurrencies have to offer, there is a risk that they could be used for money laundering. This is because something like Bitcoin is not linked to your identity or your credit history. They only depend on a private key connected to the Bitcoin account. Also, since Bitcoin is a decentralized network, it doesn’t have a central record-keeping mechanism like the bank or the Internal Revenue Service might have.

It might appear that Bitcoin might soon become a haven for tax evaders providing them with an alternative way of laundering money. With Bitcoin, people don’t have to rely on third parties or intermediaries to make a transfer. Cryptocurrencies such as Monero and Bitcoin that are focused on privacy, allow people to become their own banks as they hold their own private keys. So, cryptocurrencies could become a haven for individuals who wish to evade taxes.

Money Laundering Charges in California

It remains to be seen how the use of cryptocurrencies like Bitcoin evolves in the coming years and whether they are misused by tax evaders and those involved in organized crime. Under California Penal Code 186.10 PC, in order to convict a person of money laundering, prosecutors must prove that he or she made a transaction through a bank such as making a deposit, withdrawing funds, initiating a wire transfer, writing a check or exchanging money into a foreign currency.

It is important to note that you cannot be convicted of money laundering under this law for any type of transaction that does not involve a financial institution. Probably the most important element in prosecuting money laundering is that the transaction should be made with the specific intent of promoting criminal transaction or cleaning up dirty money that came from a criminal activity such as a drug deal.

A money laundering conviction could lead to serious consequences including prison time and hefty fines. If you have been accused of money laundering, it is important that you seek the counsel of an experienced criminal defense lawyer who can help protect your legal rights and fight the charges.

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