Rose

In brief

• Germany’s FIU revealed that anti-money laundering reports involving crypto are up 8.2% year-on-year.
• The FIU said that cryptocurrencies have become a key component of international money laundering structures.
• AI-powered detection tools could enable financial institutions and regulators to better identify illicit activity, experts told Decrypt.

Anti-money laundering reports involving cryptocurrencies rose by 8.2% in Germany last year, according to the annual report from the German Financial Intelligence Unit (FIU).

Total crypto-related reports climbed from 8,049 in 2023 to hit 8,711, accounting for a record 3.3% of all suspicious activity reports (SARs) submitted to the FIU, the agency responsible in Germany for combating money laundering.

The total figure marks a 23.6% increase since 2020, with Bitcoin predominating in the vast majority of last year’s reports, followed by Ethereum, XRP, Tether and Litecoin.

According to the FIU, credit institutions and banks submitted over 6,000 of the crypto-related reports, which generally referred to transactions to or from trading platforms, mixing services and gambling sites.

And for the agency’s analysts, this predominance of lenders is a sign that “traditional financial players have long since become key observers of crypto-based risks.”

The FIU interprets the growth in crypto-related AML reports as a sign that financial crime is adapting rapidly to new innovations, and that cryptocurrencies have become a key part of complex and international money laundering structures.

“The underlying mechanisms often elude traditional control systems and require advanced analytical approaches,” the report explains.

As an example, the report provides details on one money laundering case that involved a network of individuals and channels, with an investigation spanning much of 2024 revealing that the main participant in the network made use of 44 bank accounts and eight crypto-trading accounts.

Given such complexity, the FIU concludes the crypto-focused section of its report by affirming that “dealing with complex money laundering structures requires a coordinated approach by all parties involved,” and that the rapid evolution of new laundering methods necessitates a similarly rapid development of new analysis and investigative techniques.

Financial crime on the rise

For experts working in the area of AML, the record figures in Germany stem not only from the growth in cryptocurrency adoption globally, but also from the growth in financial crime in general.

“Germany’s uptick in crypto-related suspicious activity reports is driven by the combination of those two trends,” says Tobias Schweiger, the CEO and co-founder of Munich-based anti-financial crime firm Hawk, speaking to Decrypt.

According to Schweiger, digital assets are proving increasingly attractive to potential money launderers because it’s easier for them to hide money flows on a digital ledger, with detection mechanisms struggling to keep up with the pace of change.

“Digital ledger technology is still relatively new and financial institutions are in the process of upgrading their anti-money laundering processes and tools to address this development,” he explains.

Yet he suggests that the EU’s MiCA regulation will play an increasingly vital role in this context, helping and requiring financial firms to ensure that their KYC measures are sufficiently robust.

And because detection and reporting measures will be improving, Schweiger expects that Germany and other nations will continue to see a rise in crypto-related suspicious activity reports “over the next few years,” in addition to a rise in reports involving fiat currency transactions.

“With adoption of more AI-powered detection tools, financial institutions and regulators will be able to better identify illicit activity that may have previously gone unnoticed,” he says.

Ideally, Schweiger would like to see a shift in the near term from reactive reporting to “proactive risk mitigation,” which would include an emphasis on real-time analytics as well as data-sharing between institutions and authorities.

He concludes, “To effectively fight financial crime in the era of crypto, consistency and technology implementation will be essential.”

Daily Debrief Newsletter

Start every day with the top news stories right now, plus original features, a podcast, videos and more.

Source link