The United Nations (UN) has recently shed light on an alarming trend in East and Southeast Asia: the rampant use of cryptocurrency, especially Tether (USDT), in facilitating money laundering and other criminal activities. The crypto community is already worrying that this rise in criminal activity could force the hands of regulators to take widespread enforcement action against the crypto market.
This revelation comes from a recent UN report titled ‘Casinos, Money Laundering, Underground Banking, and Transnational Organized Crime in East and Southeast Asia: A Hidden, Accelerating Threat’, published as a wake-up call for the crypto industry and financial regulators worldwide.
The Convergence of Casinos, Cryptocurrency, and Crime
Jeremy Douglas, UNODC Regional Representative for Southeast Asia and the Pacific, explains that the melding of underregulated online casinos and crypto exchanges has led to an unprecedented rise in criminal activities.
The UN report underscores how these platforms are not just passive tools but active facilitators in a sprawling underground banking network, indeed, the network aids in laundering vast amounts of money, blending state-backed fiat and cryptocurrencies, and offering a gateway for criminal proceeds to enter the financial system.
Particularly concerning is the situation in the Mekong region where organized crime groups have exploited the technological advancements in online gambling and cryptocurrency to create a robust parallel banking system.
UNODC estimates that there are 340 licensed and unlicensed casinos operating in South East Asia, with most shifting to the digital space offering live-dealer streaming and proxy betting using cryptocurrencies.
The growth of these illicit activities is not just localized but has far-reaching implications for the permeation of international organized crime into the global financial system.
The Tether Dilemma: A Closer Look At Stablecoins
Tether, a major cryptocurrency platform, finds itself at the center of these concerns – with its stablecoin USDT standing at the largest market cap in the space ($94bn) it has emerged as a favored payment method for illicit transactions in Southeast Asia.
This has led to Tether inadvertently becoming a cornerstone of this underground economy. However, recent actions by the company, such as freezing crypto wallets linked to terrorist activities in Israel and Ukraine, highlight an attempt to grapple with the severity of the situation.
To enhance the reduction in criminal use, last year Tether invited US authorities to join its platform to help identify illicit use of its token, and correspondently the number of blacklisted Tether (USDt) wallets has since surged +27%.
Yet, TRM Labs published data in 2023, suggesting there had been a 240% increase in the use of USDT amongst terrorist-financing entities it tracks, with some financiers shifting to the use of stablecoins exclusively (compared to 80% increase in the use of Bitcoin).
Yet, with other stablecoins such as USDC at play, the report stresses the widening gap between organized crime’s technological adoption and the current regulatory frameworks.
The lack of adequate globalised cryptocurrency regulations has left a void that criminal syndicates are all too eager to exploit, and indeed, questions remain about whether any regulation can truly be effective against constantly developing technologies – which increasingly incorporate innovations such as zero-knowledge bundling to enhance user privacy.
As these groups continue to use Tether and other cryptocurrencies for nefarious purposes, the need for a comprehensive regulatory response becomes more urgent but the challenge facing regulators is daunting.
The Role of Online Casinos in Money Laundering
However, international money laundering efforts don’t just stop at the adoption of cryptocurrencies. Online casinos, especially those operating outside the legal framework, have become prime venues for laundering money through cryptocurrencies like Tether.
These platforms offer a level of anonymity and speed that is highly appealing to criminals looking to clean their illicit gains, whilst acting as ‘coin mixers’ that act to obscure crypto assets.
The report concludes with a set of recommendations aimed at bridging the knowledge gap, strengthening legal frameworks, and enhancing enforcement mechanisms with the goal of a multi-faceted approach to combat the growing influence of cryptocurrency in organized crime.
However, the backbone of these UN recommendations suggests that the law should be deployed with a heavy hand to enforce regulations, emphasizing the use of questionable ‘non-conviction-based [asset] forfeiture’.
Is the Crypto Market in Big Trouble?
It’s hard not to imagine the potential ramifications of rising crime relating to cryptocurrencies. Regulators across the world will want to stamp out as much of this activity as they can, potentially putting the crypto market directly in their path.
Some politicians and regulators, including the controversial Senator Elizabeth Warren, have pushed to ban cryptocurrencies entirely or instate incredibly damaging regulations. So far their opinions have mostly fallen on deaf ears and have received quite a bit of backlash from the crypto community.
However, if this crime continues to rise, regulators and governments may no longer have much of a choice. Legislation that would effectively eliminate it could be disastrous for the crypto market, especially if industry experts aren’t consulted.
The Bottom Line
The revelations from the UN report are a stark reminder of the dual nature of technological advancements like cryptocurrency.
While offering numerous benefits, they also pose significant challenges, especially when leveraged by organized crime in a constant cat and mouse game with regulators.
The report stresses the need for a coordinated global response that addresses the regulatory deficiencies and curbs the misuse of cryptocurrencies in criminal enterprises, but whether this is technically feasible remains under dispute.