24

Say I received 10 bitcoins on a Bitcoin address I publicly advertise for donations. Anyone looking at the blockchain can put that address in a search engine and find me. Now say I want to use those 10 bitcoins to buy drugs. If the drug dealer's bitcoins are traced, they'll point right back to me. Now I can create a lot of accounts if I want. And I can pass ...


16

Since the vast majority of money launderers seem to prefer cash, I'd say the answer is no. At least, not yet. The way money laundering works is that you hide illegitimate transactions in a sea of legitimate transactions. There are a vast sea of legitimate cash transactions which makes money laundering in cash work well. Until there are some high-volume ...


13

You can trace the coin back to its origin, the question is whether that information is meaningful. Say I steal 50 bitcoin. I can pass them around between several different Bitcoin accounts, all mine, and you can trace them. The problem is, you don't know whether any of those transactions are real. Say Jack has 50 bitcoins that come from a block reward and ...


11

Because all transactions in both Litecoin and Bitcoin are stored in the block chain, you run into the same issue you do here if you were just to try and withdraw USD for bitcoins, i.e., does your intermediary store logs of the off chain transactions? When you buy LTC using BTC on Kraken, if Kraken decides to log this transaction then there is now a link ...


9

In reverse order. Can we close a criminal's account? No. The owner of a bitcoin address can move all the money out of the address and then delete all copies of the key pair for the address. This would amount to closing the account, as the likelihood of someone having the same address in the future is infinitesimally small. However, moving bitcoin ...


8

If you purchase a bunch of Bitcoins with dirty money, and then sell the Bitcoins for clean money - you have essentially laundered your money with Bitcoins. You can then claim that your income came from Bitcoin mining, and it would be difficult to investigate. It is exceedingly difficult to anonymize your Bitcoin transactions. I think the appeal is that it ...


8

A tumbler is used to hide/disguise/make it difficult to prove where bitcoins came from. It might help to first understand that every bitcoin transaction, right back to the genesis (very first) block is available for public inspection in the block chain. Note that the actual bitcoins are not trackable, only the amounts, addresses and the transactions - ...


7

The other answers are correct, in that a mixed wallet can be used to hide tainted coins. However they miss an important point: the operator of the wallet service does have the knowledge required to trace the outbound transaction back to the original input coins, because both flows have to be associated with the wallet's internal representation of a customer ...


6

The term "Tainted Coins" is often misinterpreted as a measure of provenance. That's understandable considering the traditional definition of the word "tainted" coupled with the reality that many Bitcoins actually have been used for what would be considered nefarious purposes by standard societal norms. In fact, it is a common occurrence to be holding or ...


6

When you send coins to a large shared wallet, chances are that the coins you withdraw won't be the same as the ones you deposited. That's how you can sever the taint trail. The key is that the wallet must not only be large, but also shared between a lot of users. The taint on the original coins would never go away but could be diluted by mixing them with "...


6

It will always be possible to trace a transaction back to its initial wallet. This is a design choice by the Bitcoin team, and could have been avoided (see the answers to this question for more). However, there could be some legal ways of avoiding this, because if they money goes through several wallets, even if you can't hide the wallets, you could deny ...


5

Simply transferring bitcoins into an exchange or large private Bitcoin service has the net effect of breaking the trail of Bitcoin addresses. If your real identity is associated with an address you can send your bitcoins to an exchange and then send them back to yourself at a new address. It will appear that you cashed in the bitcoins at your first address, ...


5

I'd just say Bitcoin is like cash, Bitcoin is online cash. Yes, "the vast majority of money launderers seem to prefer cash", but since bitcoin is mostly like cash, I'd say Bitcoin could be useful for them as much as the dollar or any other cash money.


5

I think your premise is flawed - when trading on Mtgox or other exchanges, there will only be transfers between you and Mtgox. If you're a day trader most trades will be internal on Mtgox and not be settled by the banks at all. Even if they do "send a notice to anti-laundering authorities", it doesn't mean the next day they will show up at your doorstep to ...


5

It can't be closed, because there is no account. Likewise if he/she were using cash dollars for criminal purposes, it would not be possible to "close his wallet" as if it were some "account".


4

No one -- not a government, not the Bitcoin core developers -- can "close" a Bitcoin "account" because no central authority has unilateral control to do so. The closest it comes to "closing" an account is deleting the private key to an account, and such could only be done by forcing the holder to do so or tricking them into using a service that compromises ...


4

The U.S. Treasury's FinCEN describes money laundering as the process of making illegally-gained proceeds (i.e. "dirty money") appear legal (i.e. "clean"). Bitcoin is a pseudonymous digital currency but it can be used anonymously when certain precautions (using Tor, mixing, etc.) are taken. Presumably, some or all of the money would get exchanged to fiat. ...


4

I think Bitcoins could be used for money laundering however it would be hard to purchase for cash in large enough quantities to make it worthwhile. One person here commented that there are those who would sell Bitcoins up to $1000 US at a time. That's small stuff to those that need to launder money.


4

No, Bitcoin does not help anyone do anything, it is just a means of transferring value, which enables people to do anything they want with it. In this sense, it is just like any tangible means of exchange, be it money, gold, art or anything of the sort. The problem with Bitcoins though is that you have to obtain it in the first place, and currently one ...


3

It's funny, but Bitcoin laundering services are most likley used by people wishing to do illegal activities. So all the Bitcoin transactions on that laundering site are probably illegal and are criminal. Even though Fred would be caught for buying marijuana for Bob, whilst Bob would be caught for buying coke for Fred. So all the police have to do is ...


3

"AML-compliant" bitcoins are not anonymous/anonymizable by definition since most AML laws require the origin of funds to be traceable to real person, at least for bigger transactions. The "tainted" bitcoins are completely different thing, you should be completely fine accepting them in good faith if you have sender's real life ID. Law does know nothing about ...


3

In the U.S. there is the ACH bank network. Coinbase is currently the only service allowing bitcoin purchases to be paid for with a transfer from a bank using the ACH network directly. Mt. Gox and Camp BX use Dwolla which is an intermediary which allows funds to be drawn from a bank account through the ACH network. I'm unaware of any exchanges whose ...


3

Yes you can use it for money laundering. There are many people who sell bitcoin anonymously for cash. Just look at the sites that list the local buyers and sellers of bitcoin... For example I'm offering to sell bitcoin to anyone in my area for cash for up to $1000. It's not so much, and that's all I have, but there are people with more bitcoin and they can ...


3

I have a third option: We get rid of Anti-money laundering (AML) regulations. Money laundering has been criminalized in the United States since the Money Laundering Control Act of 1986. Perhaps it's time to reverse that decision.


3

TL;DR Businesses in the Bitcoin space face no special challenges to implement KYC regulation, except the privacy oriented mindset special to some bitcoin users. However, it is impractical to enforce KYC regulation on the entirety of the bitcoin network itself. Long version below Know Your Customer (KYC) regulation applies to financial institutions and ...


3

I recently came across an article that clearly articulates what a tumbler intends to accomplish. The analogy they gave was a collection plate at a church: You may have seen collection bags that go around churches, where you put a bill in your closed fist and stick your hand in the bag, so no one knows how much you put in or took out. Imagine that we come ...


3

Most Bitcoin ATM vendors require you to identify yourself and track your buys and sells. This is done due to Know Your Customers and Anti Money Laundering regulation. You need to present the source of of your money in some point when you exceed some threshold of volume. If any Bitcoin ATM vendor chooses not do this it would be helping committing money ...


3

Fraud and money laundering are two different things. Fraud, or accepting or spending money under false pretenses, would be very difficult to detect on the blockchain because it requires outside knowledge. The way banks detect fraud is by using the context of what was purchased, and where. The blockchain doesn't contain that information, so supplemental ...


3

While I’m not an attorney, the website you describe would be considered a “money transmitter business” (MTB) which, in the US, falls under the jurisdiction of The Dept. Of Treasury FinCEN (Finacial Crimes Enforcement Network) which has regulations to prevent money laundering with strict anti-money laundering (AML) policies. You would need to register with ...


2

Bitcoin exposes many flaws in the current financial system, as it was designed to be an ideal. Yes all transaction are always visible after laundering - however the problem of matching entry and exit points is "computationally irreducible", to borrow a phrase from Stephen Wolfram, so the efforts of KYC and AML are kind of hopeless once funds go into any of ...


Only top voted, non community-wiki answers of a minimum length are eligible