The 7th Global Conference on Criminal Finances and Cryptocurrencies was held on 26–27 October 2023 in the Hague, co-organised by Europol and the Basel Institute on Governance.
The outcomes of the conference were five recommendations which highlight broad approaches and best practices to prevent and combat the use of crypto assets and services to make, hide and launder illicit money. This article explores the recommendations.
Recommendations on preventing and combating the criminal use of cryptocurrencies
Accelerate innovation for investigative and monitoring tools
The first recommendation emphasises the urgent need to accelerate innovation in investigative and monitoring tools to combat the misuse of crypto assets for illicit purposes. As blockchain technologies and their applications rapidly evolve, so do the methods criminals use to exploit them. This presents significant challenges for investigators in tracing illegal crypto activities. Law enforcement has had some success in targeting centralised services and mixers used for money laundering, but new challenges arise with decentralised finance and smart contracts, as well as the vast array of cryptocurrencies and blockchain ecosystems.
To keep pace with these technological advancements and criminal tactics, there is a need for substantial investment in innovative tools, particularly those leveraging artificial intelligence (AI). AI can help untangle complex blockchain transactions, identify suspicious activities, and aid in real-time transaction monitoring. For example, AI could analyse mempools – the “waiting rooms” of blockchains where pending transactions are stored – to detect suspicious transaction patterns before they are recorded on the blockchain.
Such innovation requires investment from both governments and private investors, as well as collaboration between law enforcement, tech firms, virtual asset service providers, and academia. The abundance of publicly available data from blockchain transactions offers a valuable resource for training AI tools, promising significant benefits for reducing illicit fund flows and improving compliance and monitoring efficiency.
Boost enforcement capacity and training
The second recommendation stresses the importance of enhancing enforcement capacity and providing comprehensive training to properly police new financial technologies. Cryptocurrencies are now integral to all types of organised crime, money laundering, and sanctions evasion, marking a significant shift from their earlier association primarily with crypto-related scams and hacks.
A broad and strategic training program is necessary, ensuring that law enforcement officers, judiciary members, financial crime compliance professionals, and regulators all possess at least a basic understanding of the crypto sphere. A tiered training approach, ranging from basic to advanced levels, can optimise resources. This ensures widespread knowledge among front-line officers and allows for the formation of advanced multidisciplinary units capable of tackling complex cases and overseeing the dissemination of knowledge.
Training should be practical and hands-on, ideally involving the actual tracing of crypto transactions. Scaling up capacity building requires strategic, long-term planning and resource allocation from the highest levels of government, alongside leadership from financial institutions and policy bodies. The benefits of investing in this capacity are significant: countries with advanced capabilities are already recovering substantial assets that can be reinvested in crime prevention and enforcement, compensating victims, or returning funds to their lawful owners. Enhanced capacity to trace crypto assets improves evidence collection, efficiency, and justice delivery. Additionally, a high level of enforcement capacity is crucial for gaining investor trust, which is essential for the growth of the FinTech and crypto sectors.
Reorganise to foster collaboration and prioritisation
The third recommendation advocates for reorganising law enforcement structures to enhance collaboration and prioritisation in managing the increasing number of crypto-related cases. As the volume and complexity of these cases grow, law enforcement agencies must reassess their organisational frameworks to ensure they are optimised for efficiency and effective outcomes.
Key points include:
- Prioritisation: Strategic decisions are needed to prioritise cases effectively. Some agencies use preliminary analysis systems, conducted by humans or machines, to identify high-priority cases for escalation to specialists.
- Intra-agency collaboration: Successful crypto investigations require diverse expertise, including technical, analytical, financial, and cyber skills. Multi-disciplinary task forces are crucial, with crypto specialists being integral to asset recovery and organised crime units.
- Inter-agency collaboration: Crypto investigations often span multiple agencies. Financial intelligence units need to provide clear and actionable information to investigating agencies. Asset recovery agencies must assist investigators and prosecutors in ensuring electronic evidence, such as cryptocurrency private keys, is admissible in court.
- International collaboration: Given the global nature of cryptocurrencies, international coordination is vital. Hubs like Europol are essential for cross-jurisdictional investigations. Enhanced international collaboration can facilitate spontaneous information sharing about potential crypto-related crimes and money laundering. The transparency and global reach of blockchain technologies enable advanced jurisdictions to alert others to illicit activities.
Such collaboration not only benefits specific cases but also fosters broader knowledge sharing and the rapid development of innovative investigative tools. It supports the adaptation of special investigative techniques, like undercover operations and controlled delivery, which have proven effective in combating organised crime, including money laundering. Continuous refinement and application of these techniques to the crypto sphere are crucial for improving efficiency and achieving results.
Engage proactively in multi-sector collaborations
The fourth recommendation emphasises the importance of proactive multi-sector collaborations to combat the criminal use of crypto assets. Public-private partnerships, involving blockchain analysis firms, virtual asset service providers, academics, and the tech community, are crucial for effective enforcement. Key areas of collaboration include:
- Investigations: Blockchain analysis firms can help investigators trace transactions and de-anonymise users, providing crucial assistance for specific cases.
- Rapid responses: Virtual asset service providers can quickly assist law enforcement by providing data, freezing accounts, and stopping transactions. Their ability to act swiftly in response to urgent requests is critical due to the fast-paced nature of cryptocurrency transactions.
- Asset management: Effective seizure and confiscation of crypto assets require expertise to transfer them securely to national authorities or convert them to fiat currency. Law enforcement agencies lacking these skills can collaborate with private asset management service providers to avoid errors and security risks.
- Strategic intelligence: Partnerships between public and private sectors can generate valuable strategic and tactical intelligence on crypto-related trends and tactics. Trust is fundamental to these collaborations, enabling rapid communication and information sharing between investigators and virtual asset service providers.
- Community engagement: Engaging with tech communities, such as white hat hackers and ethical hackers, can help identify vulnerabilities and gather intelligence after high-profile hacks and scams. Participation in blogs, forums, and the metaverse can provide deeper insights into the crypto world. Collaborating with universities can enhance research and analysis of crypto-related crimes and contribute to the development of open-source tools.
Consider the whole chain, from prevention to facilitators
The fifth recommendation emphasises the need to address the entire chain of crypto-related crimes, from prevention to targeting facilitators like underground bankers. Key points include:
- Awareness and education: Enhancing awareness campaigns and educational efforts can protect users from crypto scams, improve the sector’s reputation, and reduce illicit cryptocurrency circulation.
- Regulatory measures: Implementing new regulations, such as the EU’s Markets in Crypto-Assets Regulation and South Korea’s Virtual Asset User Protection Act, can prevent crypto-related crimes by requiring greater customer due diligence and more transparency for investors, aiding both prevention and enforcement.
- Reporting systems: Governments could establish reporting systems for individuals to alert authorities about potential illicit crypto activities, potentially incentivised by reward schemes similar to U.S. whistleblowing systems.
- Targeting facilitators: It is crucial to focus on not only the criminals and money launderers but also on professional brokers, facilitators, and underground bankers who convert cash to crypto and finance organised crime globally. Financial investigations targeting assets handled by underground bankers can yield significant outcomes, as demonstrated by Europol’s Operational Taskforces TOKEN and Backing.
- Attention to unregulated services: Physical, unregulated over-the-counter brokers and crypto ATMs require more scrutiny. As regulations on virtual asset service providers tighten, criminals might exploit these unregulated channels to obscure the origin of illicit funds.
By considering the whole chain from prevention to facilitators, law enforcement and regulatory agencies can more effectively combat the misuse of crypto assets for illicit purposes.
Key takeaways
The 7th Global Conference on Criminal Finances and Cryptocurrencies has laid out a comprehensive framework to combat the illicit use of crypto assets. Through five key recommendations, the conference underscored the importance of accelerating innovation in investigative tools, boosting enforcement capacity, reorganizing law enforcement structures, engaging in proactive multi-sector collaborations, and addressing the entire chain of crypto-related crimes from prevention to prosecution. These strategic approaches are essential for adapting to the evolving landscape of cryptocurrencies and ensuring robust prevention, detection, and enforcement against crypto-related criminal activities. Implementing these recommendations will require coordinated efforts and investments from governments, private sectors, and international bodies to safeguard the integrity of financial systems and foster a safer crypto ecosystem.
