Introductory notes on the risk of money laundering and financing of terrorism in transactions with cryptocurrencies

Under the motto of "The Revolution Will Not Be Centralized", The emergence of virtual currencies or cryptocurrencies has spread globally, this blockchain revolution being a new technology that, since its emergence in the 2009, is transforming the global economy.

The figures suggest that the capitalization in the Bitcoin market only reaches USD 71,145,760,652 [1], which has aroused alarm among the leaders of the major economies and international organizations that fight against money laundering, terrorist financing and the proliferation of massive weapons, with the fear that a new, more complex and dynamic channel has been created to hide the origin of the funds that come from illicit activities.

In Peru, what seemed a few years ago a trend alien to our reality, is already present, since there are several virtual platforms that offer the purchase and sale of cryptocurrencies in a safe, easy and fast way, besides offering the connection with Latin American and global bitcoin markets. Information on how this virtual market works has been spreading little by little, and the more users are encouraged to invest in them, organized crime has also been involved, evolving to use more complex technological tools in order to introduce their profits in the formal economy.

In this sense, faced with the current and potential demand in the Peruvian local market, some questions must be resolved to identify the central ideas.

What are cryptocurrencies?

The cryptocurrencies can be defined as a means of change that works and operates in a virtual space. According to the definition of the Inter-American Development Bank (IDB), they are composed of three main elements: a set of rules (the "protocol"), which consists of a computer code that specifies the way in which transactions can be carried out; an accounting record, which records the transaction history; and a decentralized network of participants that update, store and check the transaction log according to protocol [2]. We speak of a market that operates in a space parallel to physical reality, an abstraction that extends beyond any geographical boundary: cyberspace.

According to several of its promoters, its main objective is to serve as a digital alternative to the current payment system, allowing transactions without the usual limits to the movement of capital: transfers to any country, without submitting to central banks and without the intervention of intermediaries , such as banks, remittance companies, etc. [3] It is only the invisible hand of the market that controls them.

The great ease with which cryptocurrencies are traded is that which reflects their level of exposure to the risk of Money Laundering and Terrorist Financing (LA / FT):

1.Anonimato: A transaction with virtual currencies usually has three participants: 1) a User who is the one who obtains the cryptocurrency to buy goods or services, 2) a Exchanger or "cambista", who is dedicated to changing the virtual currency for one of real value or another virtual currency, and 3) an Administrator, who is dedicated to putting into circulation (issuing) a virtual currency, with the authority to redeem it (redeem it) ) [4].

Although there are several positions that refer that it is possible to identify those involved described [5], the main motivation of their consumers is the possibility of providing privacy to their transactions and security to the funds. In this way, the risk manifests itself in the high difficulty of tracking and the need to use specialized software in order to obtain the identity of the users in the network.

2. Decentralization of the system and absence of intermediation agents: the exchange of soles, dollars, euros, yuan, in general, of any currency in the world, is linked to the monetary policies established by the central reserve banks according to each jurisdiction. These government institutions control the money supply according to the economic conditions in a given context, preserving the value of the currency and avoiding speculation and fluctuations that may damage the local market. Cryptocurrencies are alien to that control, without any regulation that restricts their issuance or transfer. Its value is merely given by law of supply and demand: a bitcoin costs what the plaintiffs want to give for it.

As a consequence, as they are not subject to any type of control at source, they do not need any financial entity to be able to transfer them to other users, since they already have a parallel exchange channel that, by its nature, is anonymous and does not require the user reveals himself to access it. In this way, they leave the customer knowledge policy (KYC) and due diligence (CDD), which are the backbone of the ML / TF prevention systems of financial institutions in the world, meaningless. Buyers of virtual currencies are not subject to the obligation to declare their full names and surnames, type and identity document number and address, according to the simplified system of due diligence in the customer's knowledge [6] applicable to banks, which is the minimum regulatory level. Naturally, virtual currencies are not subject to any freezing or embargo policy, with 100% encrypted.

3. Cross border freedom: the transfers that can be made, in addition to being anonymous, unregulated, and unlimited, are also carried out with total freedom among users from any side of the world, regardless of their location and without geographical barriers. In a single transaction, several jurisdictions with different regulatory scope may be involved, which accentuates the possibility of being used for market abuse and fraud due to the lack of treatment homogeneity.

These three elements together are reflected in the three stages of money laundering as follows:

A. Placement: criminals have the ability to quickly and anonymously open electronic wallets from where they can buy virtual coins using money obtained from illicit activities.

B. Stratification: the opportunities to carry out an innumerable amount of transactions, from country to country, are multiple. With each transfer the track of the real origin of money is erased.

C. Integration: each time they are accepted as means of payment in different establishments. There is also the possibility that these same criminals invest in crypto market businesses, such as ICOs (Initial Coin Offering) for the creation of new cryptocurrencies.

Regulatory trends worldwide

Faced with this phenomenon, the first regulatory tendencies for the prevention of ML / TF have been channeled in two ways: to promote their regulation by accepting them as a new form of economy or prohibiting their commercialization due to the high possibility of affecting the economy given its strong volatility. Its presence among different countries varies between legal, unregulated, restricted and illegal.

For example, China is known for having a "love-hate" relationship with cryptocurrencies and blockchain technology. In September of 2017, the People's Bank of China restricted the transactions with cryptocurrencies for employees and banking entities, considering that it is an illegal form of fundraising, [7] while, on the other hand, strong rumors indicate that the Chinese government is planning to launch an own cryptocurrency [8].

Table No. 1 Legality of bitcoins globally


Table 1 shows that the legality of virtual currencies worldwide continues to prevail, either when trading in a market that does not regulate them or in one that fully recognizes them as a payment instrument. Its acceptance is quite widespread, while a smaller number of countries have adopted restrictive or censorship policies.

Against this background, the Financial Action Task Force (FATF) has just taken one of the first steps to develop some virtual currency control measures, based on the premise that the application of ML / FT controls will adequately mitigate the risks associated with them. .

On February 22, 2018, within the framework of the “FATF Week” that brought together representatives of several countries, the International Monetary Fund (IMF), United Nations (UN) and the World Bank, a draft of the interpretive guide was published of Recommendation 15 “Virtual Currencies” [9], whose purpose is to encourage states to properly legislate operations with virtual currencies in their economies. This document is still in the process of being prepared, since it is expected to receive comments from the private sector until April 8 of this year.

Regulatory trends at the local level - Peru

In our country, to date there is no rule that regulates in a timely manner companies specialized in the exchange of virtual currencies. The Superintendency of Banking, Insurance and AFP (SBS), in its role of supervisor of stability and financial integrity and market behavior, only regulates the Registry of companies and persons who perform financial or currency exchange operations, supervised in matters Prevention of Money Laundering and Terrorist Financing by the SBS - FIU, through SBS Resolution No. 6338-2012, modified by SBS Resolution No. 1201-2018, in accordance with SBS Resolution No. 798-2018. However, the rules do not refer to the exchange of virtual currencies. [10]

While the legal vacuum lasts, our financial institutions must, in accordance with international best practices, develop due diligence policies that can identify and track the purchases of cryptocurrencies that are made through their platforms, in order to detect suspicious transactions, without falling in a policy of "De -risking" [11] that implies a rejection of this market that will continue to grow exponentially.

The outlook for the public sector is more worrisome: is our Financial Intelligence Unit (FIU) trained to explore the blockchain where the transfers made by users are registered to identify the beneficiary of a reported transaction? If a case arises, our judges specialized in money laundering are being trained to understand the intricate network of transactions where the criminal type has been consummated? There are several questions still unsolved.

Table No. 2: Buy bitcoins online in Peru

Source: Local bitcoins

[1] See:

[2] BID. "The flower of money: a taxonomy". Chapter V. Cryptocurrencies: beyond the fashion phenomenon. Taken from

[3] Lo, Stephanie and Wang, Cristina. "Bitcoin as money?" Federal Reserve Bank of Boston, 2014, p.2

[4] FINCEN, Guidance on virtual currency. Taken from

[5] As an example, Chainanalysis ( is one of the few companies that provides cryptocurrency transaction tracking services and solutions for financial institutions (compliance with Know Your Customer policies) and government (detection of criminal activity through cryptocurrencies).

[6] SBS Resolution No. 2660-2015 and SBS Resolution No. 4705-2017.

[7] See: y

[8] See:

[9] FATF, "Public Statement - Mitigating Risks from Virtual Assets". 2019. Taken from

[10] It should be noted that in Peru there is still no rule that classifies cryptocurrencies, even as money or digital assets.

[11] Refers to the decision of financial institutions to terminate or restrict business relationships with categories of customers considered high risk, rather than choosing to manage the inherent risk.

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Beatriz Aguedo
Certified Specialist in Money Laundering Prevention (ACAMS). Director of Training in Lawgic Tec. Bachelor of Law from the Pontificia Universidad Católica del Perú (PUCP). She currently works in the Peruvian subsidiary of the Industrial and Commercial Bank of China, specializing in Compliance, Risk Management and Prevention of Money Laundering and Terrorism Financing. Email:


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