Cryptocurrencies and Anti-money Laundering Laws: The Need for an Integrated Approach

• Published date: 26 August 2019
• Date: 26 August 2019
• Pages: 247-263
• DOI: https://doi.org/10.1108/978-1-78973-545-120191020
• Author: Mohd Yazid bin Zul Kepli,Sonny Zulhuda

Chapter 14

Cryptocurrencies and Anti-money

Laundering Laws: The Need for an

Integrated Approach

Mohd Yazid bin Zul Kepli and Sonny Zulhuda

Abstract

This chapter attempts to clarify and describe the legal and regulatory

framework for cryptocurrency with special focus on Malaysia and the

threats that it poses from the anti-money laundering perspective. Current-

ly, very few countries have legislations that regulate cryptocurrency. None-

theless, the crazy surge in prices (to more than 20-folds at some point) has

sent both legitimate investors and criminals ocking to cryptocurrencies.

This chapter analyses and compares the ofcial reports from various gov-

ernments, writings of government ofcials, experts and scholars in jour-

nals and newspapers, interviews and draws conclusions on the legal frame-

work of cryptocurrency, and money laundering challenges. The study

notes that the decision of the US regulators in allowing Bitcoin futures

to trade on major exchanges to be one of the reasons behind the sudden

surge. The study also nds that the South Korean regulators’ approach in

banning its nancial institutions from dealing with virtual currency is a

positive one. The chapter stresses that it is not adequate for regulators to

warn the public to act with extreme caution and increase their understand-

ing on the risks they take on if they choose to invest in cryptocurrencies.

Instead, it is necessary to have comprehensive international and national

laws and regulations for the control and management of cryptocurrencies.

In addition, the anti-money laundering legal framework must be improved

to cater to the new threats posed by cryptocurrency.

Keywords: Cryptocurrency; money laundering; nancial crime; Bitcoin; digital

money; alt coins; law

Emerging Issues in Islamic Finance Law and Practice in Malaysia, 247–263

Copyright © 2019 by Emerald Publishing Limited

All rights of reproduction in any form reserved

doi:10.1108/978-1-78973-545-120191020

248 Mohd Yazid Bin Zul Kepli and Sonny Zulhuda

Introduction

In the past, cryptocurrency was often associated with money laundering and

criminals. The Europol’s director, Rob Wainwright, explained that Europol,

the European Union Agency for Law Enforcement Cooperation, estimates that

around 3–4% of the £100 billion in illicit proceeds in Europe are laundered

through cryptocurrencies (Silva, 2018).

Cryptocurrency gained a lot of coverage in 2013 when the price of Bitcoin

jumped from US$13 per Bitcoin in January 2013 to around US$1200 at the end

of the same year. This is just a few dollars short from the price of an ounce of

gold (Middlebrook & Hughes, 2014). Transactions involving cryptocurrency con-

tinue to increase as more and more customers ocked into this relatively unknown

area. At its peak in March 2014, the daily volume of Bitcoin transactions in

US dollars had exceeded US$575 million (Tu & Meredith, 2015). Cryptocurrency

made headlines again in 2017 when the price of Bitcoin skyrocketed from around

US$1200 in January 2017 to more than US$19,000 in November 2017. By Febru-

ary 2018, the price fell to US$5,947.40, a day after major nancial institutions

in the United States and the United Kingdom banned their customers from pur-

chasing or speculating with the digital currency using credit cards (BBC News,

2018d). As of February 2019, 1 Bitcoin was about US$3,800.

Cryptocurrency is controversial and attracts a lot of attention. In February

2018, Venezuela launched a cryptocurrency, the Petro in what is seen by many

to be ‘an attempt to bypass tough economic sanctions imposed by the US gov-

ernment’ (BBC News, 2018c). During the same month, the United Kingdom’s

Members of Parliament (MPs) launched an inquiry to better understand cryp-

tocurrencies, the technology behind it, and the risks and benets associated with

them (BBC News, 2018e). On the other hand, the European Central Bank (ECB)

announced that it has no plan to issue its own digital currency as substantial

development is still required before the Central Bank could consider using them

(Suberg, 2018).

Taking advantage of the huge interest and high demand for cryptocurrency,

many companies advertise the perceived benets and advantages of cryptocur-

rency products and services, to the extent that Facebook decided to block any

advertisement promoting cryptocurrency products and services to enable people

to ‘discover and learn about new products and services through Facebook ads

without fear of scams or deception’ (Lee, 2018).

Cryptocurrency has been largely unregulated in the past, similar to nancial

innovations and nancial engineering before the collapse of global economy dur-

ing the Global Financial Crisis of 2008. Prior to the global nancial crises, the

global community viewed nancial innovations in positive light that resulted in

a rather laissez-faire approach from the regulatory aspect (Zetzsche, Buckley,

Berberis, & Arner, 2018).

Differences of countries’ attitude in approaching the issue of cryptocurrencies

is alarming. Earlier in 2017, Japan passed a new law recognising Bitcoin as a legal

form of currency. This chapter argues that cryptocurrency must be properly regu-

lated to ensure the protection of the public at large. In addition, cryptocurrency