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Can cryptocurrency investments lead to money laundering charges?

On Behalf of | Jul 1, 2021 | Criminal law

Investors are always looking for the newest, hottest ways to turn existing capital into even more money. Investing in booming businesses directly or through the stock market is a common investment practice. Other people invest in commodities, like oil or gold. There are also bonds and similar financial investment tools available to those hoping to diversify their personal holdings.

In recent years, various cryptocurrencies have upset the investment market by creating a completely new way to move and store money. Cryptocurrencies like Bitcoin, Ethereum and even the somewhat notorious Dogecoin have all gone through periods of sharp growth and rapid declines in value.

Tracking demand and investing wisely in cryptocurrency could make you a lot of money. Unfortunately, there might be risk associated with this newer kind of investment.

Unregulated markets are often rife with abuse and criminal activity

Bitcoin first started gaining traction in the seedy underbelly of the internet. One of the first places you could use cryptocurrency to purchase physical goods was the Silk Road, a trading site notorious for brokering all kinds of illegal, often international, transactions.

While the Silk Road is no longer operating, the influx of criminals using cryptocurrencies has not stopped or even slowed down. Those making cash in questionable ways may reinvest that money in cryptocurrency, making it hard to track while also giving that individual an opportunity to use those illicit funds for mainstream purchases.

Federal regulators have begun to pay attention to the abuse and money laundering occurring on different cryptocurrency trading platforms. Those purchasing cryptocurrency can find themselves facing allegations of money laundering if they can’t show a paper trail for where they got the money they invested in cryptocurrency.

How do you validate a transaction that is anonymous by nature?

The very way that cryptocurrency functions makes it hard to track ownership and transfer activity. You don’t have an account but rather a blockchain ledger record that shows your purchase. You may need to go back over months of financial records to show how you claimed and paid taxes on the resources that eventually purchased cryptocurrency.