Is it possible to launder billions of USD with Bitcoin?
For too long it has been said that cryptocurrencies abet money laundering, corruption, terrorism, and what not due to virtual currencies’ transactions being anonymous and the lack of a central authority watching over the cryptocurrencies.
What are the Panama Papers
However, the leak of the Panama Papers brings to light the issue of transparency in governance and traditional financial transactions, and the role it plays in abetting/curbing global public corruption.
Panama Papers are the cache of 11.5 million records revealing the hidden financial dealings of hundreds of prominent personalities from all over the world including heads of states, other politicians, businesspersons, sportspersons, and celebrities. The records expose the details of offshore companies controlled by these prominent personalities.
Controlling, or being related to offshore companies is in no ways illegal by itself, however, the records released by the German newspaper Süddeutsche Zeitung and the ICIJ (International Consortium of Investigative Journalists) show examples of neglection of laws, tax evasion, corruption, and abuse of political power.
Mossack Fonseca, the shell companies incubator
The leaked Panama Papers come from an obscure source, a law firm called Mossack Fonseca.
Mossack Fonseca is a law firm based in the tax haven of Panama. It is the world’s fourth largest law firm to set up offshore companies. It is an obscure and secretive but a very powerful law firm.
What is interesting is that there is no proof to implicate any of Mossack Fonseca’s clients for any wrongdoing, even though as per ICIJ, in its list of customers, it has Ponzi schemers, drug kingpins, tax evaders, and at least one jailed sex offender.
The law firm also refuses to discuss any case of individual legal misconduct citing client confidentiality as the reason, however it is known to go to great lengths to fortify its customers’ secret blueprints.
In fact, as per ICIJ, in Nevada, the firm removed physical records from its Las Vegas office, and had its technical experts remove all e-copies of the records to protect its clients from a legal action by the US District Attorney’s Office.
Global array of crime and corruption
Mossack Fonseca has very shady records. For example, it has worked with at least 33 companies or people that have been blacklisted by the US government due to the evidence of them being involved in extreme legal wrong-doings such as terrorism, drug trafficking, and aiding fascist regimes like North Korea.
The firm employs some of the best and controversial names in the public image management industry, thanks to which it has at least been able to manage a low profile if not a positive one.
However, since the last few years, it has been under strict scrutiny by various countries. The law firm was fined by the British Virgin Islands in both 2012 and 2013 for violating anti-laundering laws. In early 2015, German authorities raided its office and private homes in Frankfurt, and in 2016, it is facing investigations for money laundering and bribery in Brazil. These leaks will not do much good to soften the stance of governments towards Mossack Fonseca.
Money laundering with Bitcoin can only work for small players
All the flake Bitcoin receives for abetting money laundering aside, is it actually possible to launder such huge amounts of money with Bitcoin?
The general consensus seem to be, no. There are mainly two areas where it seem to fail: scale of Bitcoin, and pseudo-anonymity.
Bitcoin, as of now, is not large enough to be able to hide large sums of money. Even a small fraction of the amount of money that is allegedly being laundered in the Panama Papers in Bitcoin would cause a significant increase in price of Bitcoin for no one to notice.
Dominik Zynis, founder of a stealth company utilizing blockchain technology, agrees and says that it will probably take Bitcoin another 10-20 years to get to such a scale. Tone Vays, head of research at BraveNewCoin, thinks money laundering with Bitcoin can only work for small players.
Vays explains to Cointelegraph:
“Due to the price volatility and the fact that there is very little cumulative value on the Bitcoin Blockchain, this will only be useful for very small players who are believers in the Bitcoin technology.”
Blockchain transactions are actually only pseudo-anonymous
The other is of course the issue of anonymity.
David Mondrus, owner of FreeMasonStore and a Bitcoin expert, says:
“Real anonymity on BTC is very hard if not impossible. There have been reports of academics using statistical analysis to associate related flows and to de-anonymize them. Until we see something like Dark or ZCash launched, high volumes and checked for anonymity, I wouldn't rely on it (even) for “(tax) avoidance".”
According to popular uninformed beliefs, Bitcoin transactions are completely anonymous, and therefore the lack of transparency provides an incentive to criminal activities. However, blockchain transactions are in reality only pseudo-anonymous. That is, even though the identity of the people involved in the address is not visible to anyone, but the addresses and the amounts transferred are publicly available.
The ownership of addresses is revealed to the people from whom a payment is received on a particular address. The fact that the blockchain ledger is public provides great transparency against money launderers.