In recent years, the use of cryptocurrencies like Bitcoin, Ethereum, and other digital assets has become more widespread. With this surge in popularity, cryptocurrencies have attracted the attention of criminal enterprises, who use them to facilitate illegal activities such as wire fraud and money laundering. In this blog post, I will explore the differences between how cryptocurrencies and traditional cash are used by criminal enterprises to commit these offenses under federal law.
Cryptocurrency and Wire Fraud
Wire fraud, as defined under 18 U.S.C. § 1343, is a federal crime involving the use of electronic communications to devise and execute a scheme to defraud.
Wire fraud consists of three elements: the defendant (1) devised or willfully participated in a scheme to defraud, (2) used an interstate wire communication in furtherance of the scheme, and (3) intended to deprive a victim of money or property."
United States v. Palma, No. 21-1782, at *3-4 (6th Cir. Jan. 18, 2023).
The elements of conspiracy to commit wire fraud, in violation of 18 U.S.C. § 1349, are: (1) that a conspiracy to commit wire fraud existed; (2) that the defendant knew of it; and (3) that the defendant knowingly and voluntarily joined it. Feldman, 931 F.3d at 1257.
While cash has long been a medium for wire fraud, the emergence of cryptocurrencies has introduced new methods for perpetrating such schemes.
Anonymity: Cryptocurrencies offer a higher level of anonymity compared to cash transactions, as they are conducted through decentralized and pseudonymous networks. This makes it more challenging for law enforcement agencies to trace the individuals involved in wire fraud schemes using cryptocurrencies.
Cross-border transactions: Cryptocurrencies allow for faster and cheaper international transactions, which can be particularly appealing to criminals looking to commit wire fraud across borders. In contrast, cash transactions typically involve higher fees and longer processing times when conducted internationally.
Ease of online use: Cryptocurrency transactions can be easily executed online, making them a popular choice for wire fraud schemes conducted through the internet. Cash transactions, on the other hand, often require physical exchanges or transfers, making them less convenient for online fraud schemes.
Cryptocurrency and Money Laundering
Money laundering, as defined under 18 U.S.C. § 1956, is the process of concealing the illicit origin of proceeds generated from criminal activities.
Three elements "make out a violation of this provision[:] ... (1) use of funds that are proceeds of unlawful activity; (2) knowledge that the funds are proceeds of unlawful activity; and (3) knowledge that the transaction is designed in whole or in part to disguise the source, ownership, or control of the proceeds."
United States v. Nedelcu, 46 F.4th 446, 450 (6th Cir. 2022).
Both cash and cryptocurrencies can be used to facilitate money laundering, but there are some key differences:
Layering: Criminals use various techniques to distance illicit funds from their original source, a process known as layering. With cryptocurrencies, this can be done through the use of mixers or tumblers, which obfuscate the transaction trail. Cash-based money laundering, in contrast, typically involves structuring deposits, purchasing assets, or using shell companies to obscure the source of funds.
Regulation: Cash transactions are subject to regulations such as Anti-Money Laundering (AML) and Know Your Customer (KYC) requirements, which mandate financial institutions to report suspicious activities. However, the regulatory landscape for cryptocurrencies is still evolving, with many jurisdictions implementing varying levels of oversight. This inconsistency can create opportunities for criminals to exploit loopholes in the system.
Decentralization: Cryptocurrencies operate on decentralized networks, which means transactions are not controlled by a central authority like a bank. This can make it difficult for law enforcement agencies to seize or freeze illicit funds stored in cryptocurrencies. In contrast, cash held in bank accounts can be more easily seized or frozen by authorities when required.
As the use of cryptocurrencies continues to grow, so too does the potential for their exploitation by criminal enterprises. Understanding the differences between how cryptocurrencies and cash are used in wire fraud and money laundering schemes is crucial for both law enforcement and legal practitioners.
This blog post was prepared with the assistance of ChatGPT-4 AI. Nothing in this post should be considered legal advice or the creation of an attorney-client relationship. This blog is strictly for informational purposes only.