Fraud and money laundering

What are the potential risks of virtual currencies in terms of fraud? How would these be addressed in your jurisdiction? Have any specific instances emerged in which virtual currencies have been used for money-laundering or other fraudulent purposes?

Bitcoin and other crypto-currencies often raise concerns of money laundering. Token holders are not known in person and there is no controller of a (public) blockchain infrastructure. That said, most crypto-currencies are pseudonymous rather than anonymous. Regarding the most frequently used Bitcoin and Ethereum blockchains, all assets related to a key address, as well as all transactions, are publicly visible, while the person behind this address is usually unknown. Therefore, regulators and prosecutors have possibilities to trace crypto-assets, starting from the genesis block, that may exceed cash assets or book money. Nevertheless, a profound knowledge of the technology and experienced IT forensic experts are needed to support the authorities in this task.

The protection of crypto-currency holders against fraud is primarily based on the cyber provisions in the Swiss Penal Code. Acts that are punishable under the code include:

  • obtaining data without authorisation;
  • gaining unauthorised access to a data processing system;
  • damaging data; and
  • committing (computer) fraud.

To reduce money laundering, the Swiss Anti Money Laundering Act imposes ‘know-your-customer’ obligations on individuals and legal entities that qualify as financial intermediaries and act on a professional basis, especially if they:

  • issue means of payments (payment tokens);
  • transfer liquid financial assets on behalf of a contractual party to a third party;
  • carry out the purchase and sale of currencies; or
  • carry out or support the transfer of money or assets (money transmitting) by accepting cash, cheques or other payment instruments.

A crypto-token will be classified as ‘money’ in the sense of the Anti-Money Laundering Act if:

  • it may be used to obtain real goods or services; and
  • it is accepted by a community as mean of payment, especially if it is listed on major crypto-exchanges.

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