While it may no longer be the Wild West for cryptocurrencies, a stigma still lingers from the earlier days that the industry has not completely been able to shake. That’s because of the role that cryptocurrencies played on the dark web, where they have been used for nefarious activities such as terror funding and money laundering, among others.
As recently as November 2020, close to $1 billion worth of bitcoin — or 69,369 bitcoins — was moved from a BTC wallet. The address is likely connected to the Silk Road scandal, which dates back to 2013 and was an illicit marketplace for buying and selling drugs, stolen credit cards and other far worse crimes. Bitcoin was the currency of choice. This reputation has tainted the industry whose technology has been growing by leaps and bounds over the past decade-plus.
This year could be the turning point, but it will require the proper regulatory guardrails before consumers can feel completely safe navigating this market. After a year like 2020, with stock markets in a constant state of volatility, interest rates hovering at zero or in negative territory, and central banks around the world setting the money printers to the on position, blockchain has become an increasingly sought after technology.
The number of Bitcoin ATMs has been steadily on the rise in recent months, with the number of machines added rising nearly 9%, or by 1,118, to 12,510 in November alone, according to Coin ATM Radar. Year-to-date, the number of Bitcoin ATMs has risen from 6,375 to 12,780, also according to Coin ATM Radar. Among the companies that have increased the number of machines by a significant margin over the past months include CoinFlip, which as the world’s largest Bitcoin ATM operator boasts more than 1,200 machines across the United States, in addition to CoinCloud and Bitcoin Depot.
Ben Weiss, co-founder and COO of CoinFlip, said in a recent interview that “people are looking at bitcoin as a safe-haven asset,” pointing up that the BTC price is up about 3X since the market crash in March. With these machines now in the spotlight as an easy way to access cryptocurrencies, Bitcoin ATM operators that are on the up and up have taken it upon themselves to ensure consumer protection rather than waiting around for regulators to establish the guardrails needed to do so.
Taking Matters Into Their Own Hands
ATM operators have an interest in making sure they are all playing by the rules, as Weiss pointed out, because one bad apple can spoil the entire bunch. That is why you will find companies in the United States and Europe that are taking matters into their own hands to ensure that they are meeting anti-money laundering (AML) requirements in their jurisdictions.
London-based BCB ATM, for instance, has an AML/CTF program in place meant to prevent its machines from being used for money laundering purposes or the funding of terrorist activities. The company has assigned a compliance officer that manages these policies on a day-to-day basis, and they subject their AML program to audits.
In the UK more broadly, the Financial Services Authority (FSA) has included Automated Teller Machines in its latest regulatory guidance, which has caught some users by surprise.
Back in the States, market leaders like CoinFlip and CoinCloud are all regulated by FinCEN — which considers Bitcoin ATM operators to be money-services businesses — and have taken active steps to ensure regulatory compliance.
CoinFlip, in particular, has been active on the federal and state levels engaging with regulators and lawmakers in both California and New Jersey. The company’s aim is to help create safeguard requirements that will keep bad actors out and encourage genuine operators to grow.
Bitcoin ATM Scandals Know No Boundaries
Their efforts are in sharp contrast to the other side of Bitcoin ATMs that were found to be used for illicit purposes. In July 2020, for instance, the U.S. Department of Justice charged Californian Kais Mohammad with money laundering both face-to-face and via a number of Bitcoin ATMs. Mohammad said he exchanged between $15 million-25 million in the five-year period leading up to 2019. Among the charges against him was operating an unlicensed money transmitting business.
In Germany, BaFin, the Federal Financial Supervisory Authority, clamped down on illegal Bitcoin ATMs operating in the country. To be considered legitimate, Bitcoin ATM operators must be licensed under the German Banking Act, and all unlicensed machines are considered illegal. BaFin has therefore confiscated 17 Bitcoin ATMs of the same operator that never sought to secure a license.
In 2019, a group of bad actors from Spain and Latin America were apprehended for using Bitcoin ATMs to fund drug trafficking activities in Colombia. The drug trafficking ring reportedly accessed nine different companies to transfer more than EUR 9 million for drug trafficking.
A lack of a regulatory framework both in the United States and Europe threatens to put consumer protection at risk. It sets off a chain of events starting with players like such as Kais Mohammad slipping through the cracks, which spooks consumers from entering the bitcoin market altogether and stifles innovation by causing blockchain startups to move offshore. Most recently, Brad Garlinghouse, CEO of blockchain start-up Ripple, has threatened to move the San Francisco-based company overseas if regulators don’t get their act together.
While governments continue to stick their heads in the sand, they are leaving loopholes in the system that are allowing illicit entities to take advantage of vulnerable users. CoinFlip’s Weiss explained,
“The biggest issue with current regulations is a lack of clarity. By developing a straightforward framework, governments encourage investment and industry growth. Creating strong consumer protections will keep bad actors from competing with legitimate products and help the crypto industry gain legitimacy in the general public’s eyes.”
As in any industry, it is usually a few bad apples that spoil the bunch. The same is true in crypto. While most Bitcoin ATM operators are the real deal and ensure full compliance with AML and FinCen measures, some are using regulatory loopholes to prey on would-be users.