On a global stage, cryptocurrency has gained notoriety for enabling corruption and transnational money laundering via online exchanges—a newer and more covert method than laundering illicit cash through formal banking institutions. If trends continue, the opacity associated with some cryptocurrency transactions—celebrated for putting the power of free-trade and markets in the hands of individuals rather than institutions—will pose an even greater threat to good governance and anti-corruption efforts around the world.
Since the inception of Bitcoin in 2008, the use of cryptocurrency for financial transactions has risen. El Salvador, for example, controversially adopted Bitcoin in 2021 as a form of legal tender. While the concept of cryptocurrency was initially acclaimed by investors for its ability to empower individuals with access to the internet by circumventing financial institutions, anti-corruption experts are growing increasingly worried about its potential to facilitate illegal transactions by corrupt actors. Following Russia’s unprovoked attack on Ukraine in February, the Biden Administration is reportedly considering sanctions on Russia’s crypto exchanges amid concerns that Russian elite financiers could turn to cryptocurrencies to sidestep U.S. and European sanctions on banks. Recent evidence shows that the obscure nature of cryptocurrency has sparked innovative modes of money transfers, allowing kleptocrats and malign actors to use loopholes in online trading to steal and hoard wealth and circumvent traditional institutional oversight.
In Latin America, micro-laundered cryptocurrency—money moved in small amounts over the course of a large number of transactions to avoid the attention of law enforcement— has emerged as a means of cashing out on proceeds of illicit gang activity. This trend is not unique to Latin America—an estimated $4.2-$5.6 billion is crypto-laundered every year in Europe. In 2021, the FBI also noted a sharp rise in ransomware attacks in the past decade, where hackers block access to files and typically request payment in hard-to-trace cryptocurrencies or by employing tumbling and mixing services to mix identifiable cryptocurrency funds with others, concealing the trail back to the fund’s original source.
The evolving nature of technology has exacerbated the risks of transnational kleptocracy. It is now easier than ever for political elites to move vast sums of stolen money across borders at the click of a button. Further, the ability to do so covertly assures actors’ impunity. With the emergence of modernized tactics employed by corrupt actors around the world, traditional approaches to anti-corruption alone are falling behind and may not offer the flexibility required to tackle complex, transnational challenges. The prioritization of anti-money laundering efforts which include cryptocurrency consideration is of the utmost importance to deter, detect, and counter illicit financial transfers and transnational kleptocracy.
In December 2021, the U.S. signaled a new approach to combating the multifaceted challenges of modern corruption. Ahead of the U.S. Summit for Democracy, the Biden Administration elevated Anti-Corruption as a key national security priority through its release of the U.S. Strategy on Countering Corruption. Under its Strategic Objective to enhance anti-corruption enforcement efforts, the Administration established the first-ever National Cryptocurrency Enforcement Team (NCET) under the Department of Justice. The NCET will focus on investigating and prosecuting criminal misuses of cryptocurrencies, mixing and tumbling services, and money laundering infrastructure actors.
Based on years of experience working alongside civil society and governments to tackle corruption-related issues, IRI is working in tandem with the efforts of other U.S. agencies to deploy research-based, context-specific interventions to empower stakeholders in the fight against corruption and money laundering. Through its anti-kleptocracy projects, IRI continues to connect and equip stakeholders with a better understanding of kleptocracy and tools to combat illicit practices spurred by corruption.
Understanding the tactics used by kleptocrats around the world to illicitly build wealth for themselves and undermine democracy is the first key step in determining approaches to counter them. IRI’s new Kleptocrat’s Playbook: A Taxonomy of Localized and Transnational Tactics catalogues tactics kleptocrats use to enrich themselves and evade accountability. Through economic and financial tactics – like the laundering of funds through opaque cryptocurrency transactions – Kleptocrats can pilfer the proceeds of crime, enriching themselves, other political elites, and professional intermediaries. The Playbook also offers transnational counter-response tools intended to target kleptocracy through examples of law enforcement, economic statecraft, and civil society pressure. Activists, journalists, civil society organizations, and policymakers can use these tools and other best practices outlined in the Playbook to better anticipate, identify, and counter kleptocrats at home and abroad.
Raising awareness is the first step to actively combatting the tactics employed by corrupt actors to exploit weaknesses in democracies. Through its anti-kleptocracy programming, IRI continues to provide evidence-based responses to the complex and evolving nature of cryptocurrency and other tactics employed by corrupt actors around the world.Top