GAO: Crypto ATMs must be regulated to fight illegal cyber activities


The Government Accountability Office (GAO), the government unit that audits and provides investigative services for Congress, attributes the proliferation of illegal cyber activity through the use of crypto payments to crypto kiosks (crypto ATMs).

GAO published a study specifying that crypto ATMs are partly the reason for the increase in illegal activities because they are less supervised compared to crypto exchanges. Therefore, it is difficult to trace transactions through ATMs.

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Use of crypto ATMs for criminal activities

According to the GAO report, FBI officials predict that the expansion of the cryptocurrency will lead to an increase in the use of digital currency kiosks for criminal activities such as work and drug dealing.

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The GAO recommends that the Internal Revenue Service and the Financial Crimes Enforcement Network (FinCEN), under the umbrella of the US Department of the Treasury, collaborate to strengthen control of crypto ATMs. The agency has studied how cryptocurrencies are used in illegal operations such as global trafficking and how US agencies including Immigration and Customs Enforcement (ICE), the US Postal Service (USPS) and the IRS, are targeting crimes initiated with cryptocurrencies.

In its report, GAO has listed some of the obstacles government agencies face in combating illegal crypto activities. One is the vast lack of information, including from crypto kiosks, which is hampering law enforcement’s ability to identify and apprehend crypto criminals.

However, the GAO’s findings on the rise in crypto crime run contrary to the report by Chainalysis, a crypto research firm, which concluded that while there is a continued rise in crypto crime by volume, it was low compared to the percentage of all 2021 crypto transactions.

In simple terms, Chainalysis concluded that despite cryptocurrencies infiltrating the financial market, crypto crimes will continue to rise, but the rise in legitimate crypto transactions will outpace illegal activities.

Money laundering

Transnational criminal organizations (TCOs) and drug cartels prefer the use of digital currency due to the anonymity it provides and its efficiency in moving cash across international borders.

Crime-based organizations are turning to crypto to transfer money across national borders without unfavorable scrutiny from law enforcement agencies and crypto ATMs are at the heart of the whole process.

Large volumes of money from the illegal drug trade are deposited at a kiosk and converted into digital currency, after which crypto wallets are transferred, reducing the chances of being traced by law enforcement.

labor trafficking

According to GAO Crypto is also reportedly used to pay for human trafficking and is primarily used to pay sex traffickers.

The GAO quoted Polaris, a US-based nonprofit organization that plans to eliminate human trafficking, as reporting that 23 of 40 or more than half of the dominant digital commercial sex venues used for commercializing sex trafficking accepted payments in the form of cryptocurrencies.

According to the GAO, online sex markets adopted crypto payments due to challenges in accepting traditional card payments. One example is OnlyFans, a sex-oriented content subscription service, which banned adult content after receiving pressure from banks and before reversing the decision after receiving negative feedback from fans.

Drug dealing

After the closing of Silk Roada virtual dark web marketplace, in 2013, law enforcement found it more difficult to track down the dark web umbrella market for illegal drugs due to the existence of smaller dark web marketplaces.

The GAO report further explains that criminals jump from one market to another when the government shuts one down.

However, this has not stopped the government’s efforts to confiscate cryptocurrencies related to drug trafficking. The IRS, in 2021, for example, was able to seize $3.5 billion in crypto where $1 billion was linked to Silk Road.

GAO also found in its research that 36% of all crypto-related crimes were attributed to drug trafficking. For the IRS, 25% were drug-related investigations linked to crypto. The USPS seized 85% of cryptocurrency-related money transfers linked to drug trafficking.

Crypto ATM Regulation

The GAO is concerned that despite the registration of crypto kiosk operators with FinCEN, these operators do not report the location of their ATMs to the government. This prevents federal agencies from identifying ATMs in high-risk financial crime locations.

By increasing monitoring of these crypto ATMs, the GAO claims the government will be able to collect information and have a more notable ability to crack down on illegal transactions.

GAO has provided two recommendations to FinCEN and GAO on improving crypto ATM regulation and the two agencies agreed with the recommendations. The recommendations were that the IRS commissioner and the director of FinCEN simultaneously review the requirements for registration of money services businesses (MSBs) for crypto ATMs and other exchanges and deliberate on how these crypto ATM operators should report to agencies. of law enforcement on the physical addresses of their kiosks.

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