Cryptocurrency use growing among drug traffickers

For decades, drug traffickers carried their cash in suitcases to dodge banking controls, and the police. Today, many are also using cryptocurrency wallets installed on their cellphones.

When the United States Justice Department announced charges in April against four sons of jailed Mexican drug lord Joaquin "El Chapo" Guzman, the indictment said they had used "untraceable cryptocurrency" to launder the profits of their US fentanyl smuggling operation.

On the same day in April, US authorities also announced the arrest in Guatemala of a wanted money launderer who they say worked for the cartel, accusing him of collecting US$869,000 in drug profits and depositing the cash in cryptocurrency wallets.

The cases highlight how drug cartels and crime gangs in Latin America have taken up virtual currencies to launder money, receive payments and sell drugs on the dark net because law enforcement authorities are finding it harder to detect the deals, researchers and officials say.

"The technology is getting better and better, which is making it even more difficult for law enforcement to go after these bad actors because this process provides and allows for anonymity," said Gretta Goodwin, a director at the Homeland Security and Justice team at the US Government Accountability Office (GAO), a congressional watchdog.

Criminals use cryptocurrencies because it is an easy and efficient way to do business, particularly across borders, said Kim Grauer, a data scientist and cryptocurrency researcher.

It is a trend organised crime groups in Brazil and Central America are also tapping into, according to a report published in the Georgetown Journal of International Affairs in March.

The report's co-author, Douglas Farah, said using cryptocurrency for laundering drug money was easier in countries with lax crypto regulation or where bitcoin is classified as a legal tender, such as El Salvador.

To move money through cryptocurrency platforms, criminals are taking advantage of unregulated exchanges that do not require proof of identification or registration information, said crypto intelligence company CipherTrace.

Yet most countries in the region have not updated their anti-money laundering regulations to include cryptocurrencies, said the United Nations Office on Drugs and Crime (UNODC).

Countries with few or no compliance requirements around money laundering are proving attractive for criminals using cryptocurrency, said Goodwin from the GAO.

The adoption of cryptocurrency in the narcotics trade also goes hand in hand with the rise of drug sales on the dark net, a hidden part of the Internet, according to a 2021 UNODC report.

It said Latin America and the Caribbean have experienced a "sustained growth" in the online trafficking of synthetic drugs and opioids, mostly using bitcoin, the first cryptocurrency to enter the market in 2009.

Drug traffickers have taken advantage of more people being online, and they also advertise drugs on dating sites and apps, such as Grindr and Tinder, the UNODC report says.

It is a trend that increased during the Covid-19 pandemic when online platforms selling drugs grew as people were stuck at home, said Mariana Kiefer, UNODC's cybercrime regional coordinator for South America.

Many virtual currency transactions are permanently recorded on public blockchains, which show all transactions between wallets, meaning police and researchers can trace transactions provided they have the right tools, software and expertise.

A breakthrough often hinges on whether it is possible to access the right cryptocurrency address that has received a payment allowing researchers to follow the money.

But a key challenge is ensuring US law enforcement and drug agencies are literate in cryptocurrencies so they understand "what they are actually looking at", to build an investigation from complex databases, she said.

US law enforcement agencies are partnering with other experts to trace cryptocurrency payments as criminals adapt and use new technology to avoid detection, said Goodwin.

* The writers are from Reuters

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