Scandal in Spain - Laundering €3m Into Cryptos

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A recent case in Spain has shown funds illicitly obtained as a result of the facilitation of contraband sales got successfully laundered through a variety of means which included so-called ‘virtual currency’ in late June 2020.

So what exactly occurred, and what relevance does it hold to cryptos and their status as privacy-enabling currencies?

The Scandal in Spain

On June 28, 2020: Spain’s interior ministry (Ministerio Del Interior) issued a statement entitled ‘The National Police dismantles the infrastructure of the main websites dedicated to the illegal sale and distribution of drugs in Spain’ concerning the crypto mentioned above laundering.

Two consequent recently-concluded criminal investigations have resulted in the arrest of 33 suspects, with 17 searches reported to have been instigated by Spanish authorities throughout several municipalities across mainland Spain.

Each investigation was into one of two different responsible organizations zations.

The contraband being sold on the websites that were operated by the suspects included: MDMA, Cocaine, erectile dysfunction medication, and “computer items and numerous valuable jewels”.

Furthermore, the article claims that $3million+ worth of funds were identified by investigators in the laundering operation.

Investigators noted that the purchase of virtual currencies stood out, and was a notable factor in identifying the illicitly obtained funds.

Cryptocurrency and Money Laundering

While challenging to deny that the news dispersed by Spanish authorities isn’t positive, it is also unfortunately not much of a surprise that it happened as cryptocurrency:

• Was first created with ideals such as privacy and anonymity in mind, among others. Privacy and anonymity of transactions have a benefit to activists and others. However, it is also attractive to criminal actors.
• Has long been tarred with the brush of drug-related criminal activities, with early examples including international drug and contraband marketplaces such as Silk Road.

The presence and wide reporting of bad actors using cryptocurrency for illicit means (including hackers/thieves and drug dealers) has damaged the reputation of digital currencies, with such instances collectively serving as catalysts for legislative crackdowns.

On one side, legislative oversight has the benefit of protecting citizens from dodgy investments as well as preventing the distribution of illegal drugs and materials. On the other, however, it affects the image of crypto as a tool for financial freedom and autonomy.

The Privacy Debate

On the other side of the privacy, debate sits those who advocate the principle tenets of cryptocurrency, as established by Satoshi Nakamoto in Bitcoin’s seminal whitepaper. So don’t believe the sensationalist headlines because it’s not just criminal actors who benefit from (and advocate for) crypto privacy.

Non-profit organization the Human Rights Foundation recently declared its support for controversial Bitcoin mixing technology ‘CoinSwap’ when it awarded developer Chris Belcher $50k in the first of a series of grants in a program called ‘Bitcoin Development Fund’ which supports Bitcoin pro-privacy developers.

Crypto ‘mixing’ technology is a means of obfuscating both origins and destination of funds in transaction data published on distributed public ledgers/blockchains which are, at a base level, viewable by anybody.

The decentralized nature of crypto and the relative accessibility for those with the know-how to create new networks anonymously means: that while crypto gets legislated, it is almost impossible for government authorities to police all operations occurring on the network successfully.

Authorities have a lack of control in governing decentralized financial networks compared to centralized ones.

Much like many instances of cyber-crime, now predicted that the development of privacy measures versus policing tools would be something of a cat-and-mouse relationship, between regulatory authorities and pro-privacy developers.

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