U.S. enforcement agencies have warned against using Bitcoin for illegal activities, primarily child exploitation and human trafficking.
Bitcoin and cryptocurrency adoption rates are rapidly increasing over time. The adoption of this innovative technology is not limited to the financial sector, with many industrial companies using blockchain technology for better and more reliable data processing. Many companies use cryptocurrencies to provide cross-border payment services at very cost-effective rates.
Recently, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) released a report showing a surge in the adoption of Bitcoin and other cryptocurrencies in human trafficking-related activities.
The report noted that 95% of reported cases of online child exploitation and human trafficking involve the use of cryptocurrency.
In particular, from January 2020 to December 2021, such cases surged from 336 to 1,975, raising major concerns about the rapid increase in cryptocurrency adoption.
As we know, FinCen’s primary role is to combat misuse of the financial system by illegal actors. However, they are unable to handle cryptocurrencies linked to illegal actors.
However, most cryptocurrencies are fully traceable and it is easy to catch criminals using cryptocurrencies for illegal activities, but these actors are smart enough. They use untraceable cryptocurrencies (e.g. Monero (XMR), Verge, Z Cash, etc.).
The Bank Secrecy Act (BSA) found that 2,157 of the 2,157 reports cited Bitcoin as the primary convertible virtual currency used in human trafficking and online child exploitation cases.
To date, FinCEN has identified approximately 1,800 unique cryptocurrency wallet addresses that are strongly linked to online child exploitation cases and human trafficking crimes.
The lack of cryptocurrency-focused laws and rules leaves most U.S. enforcement agencies unable to fully combat cryptocurrency-related illegal activity.
FinCen agencies have formed a partnership with Canada’s Financial Intelligence Unit’s “Project Protect” to combat these incidents.
In October 2023, the enforcement agency proposed rules that would force all local cryptocurrency companies to follow “certain recordkeeping and reporting requirements” for transactions involving cryptocurrency mixers.
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