Last year, at the 25th Annual ACFE Global Fraud Conference, Jim Butterworth, CFE, explored fraud’s expanding playground with the growth of virtual currencies in his breakout session, “Bitcoin and Virtual Economies: Fraud’s New Best Friend.” While virtual currencies, like Bitcoin, might be the future of financial technology, they also open the door to new fraud schemes. “Virtual and cryptocurrencies are still the Wild West,” said Butterworth. “This creates a hotbed for fraudsters and new fraud techniques, something the fraud community will be combating for the foreseeable future.”
David Long, J.D., CFE, CAMS, principal at NCFPS-Digital Currency AML Consultants, LLC, picked up where Butterworth left off in his Pre-Conference session, “Bitcoin, Alt Currencies and the New Landscape for Laundering Money.” Long made an interesting point, though: Because virtual currencies are a new and disruptive technological innovation, it's unclear what impact they will ultimately have on money laundering, terrorism financing or other crimes. However, like any other technology, disruptive or not, virtual currencies are neither “good” nor “bad.” The technology can be used for purposes both good and bad. And CFEs will need to hear the call to pursue the more nefarious threats.
While Long discussed the many risks associated with virtual currencies, he placed special emphasis on the global nature of this technology and the risks associated with it. "When you're a CFE working in this field, you will come across cases that cross borders. The very nature of virtual currencies crosses borders," said Long.
Virtual currencies have a broad geographical reach and the physical location of a transaction’s participants is of no consequence due to the nature of the block chain. Long explained that the block chain is a public ledger and bitcoins only exist on the block chain. Therefore, when one Bitcoin is transferred from one person to another, it only travels on the block chain. It does not physically transfer from one wallet to another; only a record of the transfer is recorded on the block chain. Thus, virtual currencies readily lend themselves to international transactions due to their extremely low transaction costs, Long explained. "The wider the reach, the greater the risk."
Long also touched upon the changing technological environment and how it's lending itself to the growth of virtual currencies. "CFEs have a responsibility to be abreast of rapid technological advancements," said Long. "Change happens incredibly quickly. Like lightening."
Can adequate regulatory frameworks be developed around these technologies that are strong enough to reduce anti-money laundering risks to acceptable levels, yet at the same time are flexible enough to lend themselves to widespread adoption? While the answer to this question remains to be seen, Long advised CFEs to stay current on advancements and changes in this field, and to network with other professionals in the field. You never know when lightening could strike.