Beating the crypto-criminals

Senior Business Solutions Consultant, Fraud Prevention, BAE Systems Read time: 2 mins
The banking industry’s early collective scepticism about the future of cryptocurrency means its potential value to financial criminals was underestimated says Gareth Evans.
Beating the crypto-criminalsInstead of proving a flash in the pan, enthusiasm for cryptocurrency has grown – and with it the associated fraud. Cyber criminals were quick to develop malware with the aim of stealing cryptocurrencies, with attackers finding ways to exploit the anonymity offered.

Though these currencies hold great potential for creating a more diverse payments system, by operating outside of central banks they also pose significant security risks. In June and July 2018 alone, UK victims reported losing £2,059,501 to cryptocurrency scams, according to figures from Action Fraud.

It seems cryptocurrency technology is here to stay and banks must work fast to play a role and build security around this new form of currency. In fact, some already are. JP Morgan Chase has announced plans to launch a cryptocurrency, the first to be backed by a large US bank. Several of the world’s largest – BNY Mellon, Deutsche Bank, Santander and UBS – are now joining forces to build a blockchain-based digital cash-settlement system
 
Unsurprisingly the ability to swap between cash and cryptocurrency is extremely attractive for criminals who find themselves able to hack into a bank account, send money to another account that they can control, take the money out as cash, and convert it into a currency such as Bitcoin through an exchange.
 

Financial institutions are taking the hit

Financial institutions are currently taking the hit for this sort of cryptocurrency-enabled financial crime, with its links to terrorist financing and people trafficking. Authorities will inevitably begin to come down heavily on the ways Bitcoin is being used, with the exchanges potentially finding themselves liable for money laundering checks.
 
Cryptocurrencies already play a significant role in serious and organised crime through money laundering. This costs the UK £24 billion per year, according to the National Crime Agency.
 
Cryptocurrencies are both unpredictable and unprotected, so it’s no surprise that organisations, including the UK Cryptoassets Taskforce – which comprises the FCA, Bank of England and HM Treasury – are urging crypto-focused regulation.
 
In future we may see banks and exchanges swapping roles, with the latter operating as banks - or vice versa if exchanges are shut due to money laundering concerns. Where the risk for money laundering will ultimately lie is not yet known.
 
We do know, though, that as this liability changes, so too will the financial landscape in which it operates. It is essential that banks prepare for change, even when its form is unclear. Failing to future-proof effectively will leave banks with far too much to lose, both reputationally and financially. 
 

To find out more explore our research on future-proofing banks:

Future-Proof Banking

Building financial crime resilience today to future-proof banks for tomorrow

The world of banking is transforming at enormous speed. Criminals are easily keeping pace. The most successful and profitable banks of tomorrow will be those that work hardest on financial crime prevention and defence today.
Find out more
top
Gareth Evans Senior Business Solutions Consultant, Fraud Prevention, BAE Systems 29 October 2019