LibraryKYC hubKYC NewsCriminals are using bitcoin ATMs for scams and money laundering schemes

Criminals are using bitcoin ATMs for scams and money laundering schemes

As the popularity of bitcoin, and cryptocurrencies, continues to soar, so does the availability of bitcoin ATMs. And they're making it easier for criminals to conduct illicit activities in broad daylight. Read below to learn more.

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December 13, 2021

As the popularity of cryptocurrencies continues to skyrocket, the number of bitcoin ATMs in operation across America is also increasing. However, although these ATMs have made it easier for customers to buy bitcoins and other cryptocurrencies using cash, they’ve also made it far simpler for criminals to conduct illicit activities, such as money laundering and drug trafficking.

How quickly has bitcoin ATM crime risen?

According to US law enforcement, the rise in bitcoin ATM crime has been particularly sharp since the start of 2020. This is partially because there has been an explosion in the popularity of bitcoin ATMs. Back in January 2020, 4,212 bitcoin ATM machines were in operation across America. However, today, that number has risen to more than 26,000. 

Earlier this month, the FBI warned that criminals have now started to target these ATMs. In a public service announcement, they said that “The FBI has seen an increase in scammers directing victims to use physical cryptocurrency ATMs and digital QR codes to complete payment transactions.” QR codes can be used at crypto ATMs in order to direct payments to intended recipients.

To facilitate the fraud, a scammer will provide a victim with a QR code that is associated with their cryptocurrency wallet. The victim will then be directed towards a cryptocurrency ATM, where they’ll be told to insert their money, buy cryptocurrency and then use the QR code to auto-populate the scammer’s address.

How can these scams be stopped?

At present, bitcoin ATM operators are required to register with the U.S. Treasury Department’s Financial Crimes Enforcement Network. However, an investigation by the New Jersey commission released earlier this year found actual regulation was lax. These findings were also backed by studies in other states.

At the moment, many machines permit near-total anonymity when a buyer purchases up to $900 of cryptocurrency. While some providers ask for a cellphone number, others require no identifying information at all.  

However, this lack of oversight is now beginning to worry law enforcement officials. This is because the anonymity provided by the machines makes it easy for criminals to exploit the ATMs and use them for illicit purposes. As part of this, a recent study found that 75% of all illicit funds leaving the ATMs wound up being used at fraud shops and sites on the dark web that sell stolen credit card information.

Is greater regulation the answer?

It now appears as though the rise in criminal activity is concerning both ATM operators and regulators. As a result, in recent months, a consortium of financial services businesses have launched a Cryptocurrency Compliance Cooperative to help tackle the issue. As well as ATM operators themselves, the cooperative also includes banks and traditional financial services companies and aims to create a universally accepted standard to improve the industry.

Those involved in the cooperative now suggest that companies should ask for more than just a cellphone number in order to complete a transaction of up to $900. For transactions above this level, they believe companies should have an AML and KYC approach that’s commensurate with the risk.

At present, regulations regarding bitcoin ATMs vary on a state level. For example, Nevada does not have a specific regulatory carve-out for cryptocurrency, but if an entity serves as a digital custodian of any form of digital currency, the business may be regulated as a trust company. By contrast, New Hampshire and Wyoming have laws specifically exempting virtual currencies from their money transmission statutes.

However, based on recent reports about fraud and crime related to the machines, regulators in New Jersey have expressed their belief that it’s “crazy” for the state to have no control over the industry. As a result, in the coming months and years, a stronger regulatory framework is likely to come into force on a state-by-state level, and it’s possible that action will be taken at the federal level if the issue worsens.

Ensure compliance with Veriff

In our latest Crypto Fraud Report, we found that the cryptocurrency market is subjected to the highest fraud rate compared to other industries that Veriff works with right now. In 2019 alone, cyber criminals were able to siphon away $4.26 billion from cryptocurrency users and exchanges.

If you work in the crypto space, then ensuring compliance with the latest regulations is vital. Thankfully, our identity verification platform can prevent fraud, guarantee compliance, increase conversions and always ensure that you know your customers. Talk to us today to see how we can help you.

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