- As the number of bitcoin ATMs skyrocketed across the country, criminals increasingly use the machines in schemes including money laundering and drug trafficking.
- The ease of transactions and the relative anonymity allowed when using them have contributed to the misuse of ATMs.
- Some in the industry are pushing for uniform standards between regulations and state laws to prevent crime.
Law enforcement officials say criminals are cashing in on bitcoin ATMs across the country using convenient, largely anonymous transactions for drug trafficking, money laundering and a variety of frauds.
The machines, which are mostly located in convenience stores and owned by private companies, allow customers to easily buy bitcoin and other cryptocurrencies using cash. The funds are then sent to that customer’s crypto wallet.
But that convenience also means easy money for fraudsters.
According to law enforcement, fraud has become more widespread as bitcoin ATM installations have skyrocketed in the US in recent years. According to Coin ATM Radar, there are over 26,000 machines standing today, up from 4,212 in January 2020. Well-known companies like Walmart and Circle have started installing them.
The FBI last week warned of fraudulent schemes using cryptocurrency ATMs and quick response to payment facilities, or QR, codes.
“The FBI has noticed an increase in scammers directing victims to use physical cryptocurrency ATMs and digital QR codes to complete payment transactions,” the bureau said. a public service announcement. QR codes in crypto ATMs can be used to direct payments to intended recipients.
According to the FBI, how this particular fraud works: “The fraudster provides the victim with a QR code linked to the scammer’s cryptocurrency wallet to use during a transaction. The scammer then gives the victim a physical card to put their money in.” Directs you to a cryptocurrency ATM, purchase cryptocurrency, and use the QR code provided to auto-populate the recipient’s address.”
One state recently targeted the lack of monitoring of machines.
“There’s scams, there’s fraud,” said Lisa Cialino, an attorney with the New Jersey State Commission of Investigation. “The most shocking thing is that there are owners and operators of these machines who really know nothing about what they are supposed to do under the Bank Secrecy Act.”
Bitcoin ATM operators are required to register with the US Treasury Department’s Financial Crimes Enforcement Network. However, an investigation by the New Jersey Commission released earlier this year found that the actual regulation was lax, which is similar to that of many states.
“Many machines allow anonymity on purchases of cryptocurrency up to $900 by allowing users to simply provide a cellphone number,” the commission report said. “Some don’t require any identifying information.”
This is alarming for law enforcement officers, who told CNBC that ATMs are being used for a wide range of criminal activities. Drug smugglers, money launderers and people trying to get unwitting victims to send money to crypto wallets have used the machines. A 2020 DEA report warned that ATMs “could aid in the movement of illicit wholesale currency.”
Cialino told CNBC that it’s easy for criminals to take advantage of ATMs easily.
“It seems to be very simple because a lot of these machines are not collecting information about the person doing the transaction,” she said.
of the New Jersey Commission The report found that more than $70 million was deposited for cryptocurrency purchases in the state between 2015 and 2020.
Mark Greins, president of Chicago-based bitcoin ATM operator Digitalmint, said the report’s findings reflect what his company discovered when it investigated where certain crypto transactions ended.
“This leads us to believe, based on our due diligence, that these exchanges are great havens for people who are scamming a person in the United States to send funds outside of US borders, which may give them money. Allows you to claim and get complete control over it,” he said.
Just this month, state police in Pennsylvania warned of a bitcoin scam in which people would receive text messages about unauthorized charges on their PayPal accounts, asked for personal information, and then told to buy bitcoins at an ATM and. send it to someone
A study by Chainalysis found that nearly 75% of all illicit money is being used at ATMs at fraud shops, sites selling stolen credit card information on the dark web.
In an effort to crack down on fraud and establish universal compliance standards, Digitalmint recently launched a cryptocurrency compliance cooperative.
The consortium “was put together in this space by like-minded people in traditional financial services, blockchain forensics companies, banks and other bitcoin ATM organizations that wanted to create a universally accepted standard. To improve the industry,” Grains said.
He said, “There is crime. It’s never going to stop. It’s just a new medium that has happened and is happening, and we have real data that it is happening. And we want to work together to stop it.” Huh.”
Grains said companies should not allow transactions up to $900 with just one phone number.
Executives at CoinFlip, another major Chicago-based crypto ATM operator, say the $900 limit is not a problem. The company allows crypto purchases up to $900 with just a name and phone number. Higher amounts require additional identification.
CoinFlip CEO Ben Weiss said the company has a risk-based tiering approach based on the amount of crypto a customer has purchased.
“At every single level, there are additional pieces of KYC [know your customer] Those are necessary,” he said.
In addition, Weiss said that the company uses blockchain analytics tools to detect fraud. Crypto wallets associated with nefarious activities are blocked.
“In the same way that it shows where bitcoin is going, it also shows where bitcoin is coming from. The great thing about bitcoin is that there is a public ledger,” he said.
Weiss said asking for just a phone number for transactions of less than $900 allows more potential customers to buy crypto.
“You have to take an AML approach” [anti-money-laundering] With a KYC approach that is risk compliant, and for fewer transactions, we don’t want to deprive people of the franchise,” Weiss said. “We want everyone to be able to buy $50, $100, $200 bitcoin , regardless of their immigration status and whether they have an ID.”
Weiss said that “everyone in the industry, especially us, wants to do our part to make sure this is the cleanest industry possible.”
CoinFlip president Chris Derrit said that customer service agents are trained to watch for red flags such as if customers are being coerced into transactions.
Other bitcoin ATM companies say they take anti-fraud measures seriously.
Doug Carrillo, co-founder and chief strategist at Bitstop, said that “there are bad apples like any industry. … Many ATMs will let you buy anonymously, you know, without any identification.”
He said ATMs have allowed fraudsters to set up branches.
“It is no different from the bad actors in the check cashing space, money transmission space, MSB [money service businesses] Those who run scams over the weekend, collect money from people and disappear,” Carrillo said.
Brandon Mintz is the CEO of Atlanta-based Bitcoin Depot, the country’s largest ATM network. The company announced a partnership with Circle K to set up kiosks in stores.
Mintz said the relatively new industry has left the door open for looser standards.
“Regulation is, to some extent, good,” Mintz said. “Regulation that stifles innovation is not good. So we think right now that there are other companies out there that are not even close to our standards and they are flying under the radar for now. Now with time, we imagine That things will clear up and based on enforcement actions, they will hopefully be forced to adhere to the level where we are today.”
High-profile enforcement actions have followed the proliferation of bitcoin ATMs. They include a guilty plea last year by a California man who laundered millions of dollars worth of bitcoin and cash through an unlicensed ATM, according to the US Attorney’s Office for the Central District of California.
The rules differ at the state level. For example, the New York Department of Financial Services requires businesses or individuals engaged in any virtual currency activity to obtain BitLicense.
Nevada does not have a specific regulatory carving out for cryptocurrencies, but if an entity acts as a digital custodian of any form of digital currency, the business can be regulated as a trust company.
In contrast, New Hampshire and Wyoming have laws specifically exempting virtual currencies from their money transmission methods, in accordance with the National Convention of State Legislatures.
Following the commission’s report in New Jersey, a bill is pending that would regulate digital asset activity. This would require operators to obtain a license from the state’s banking and insurance department.
“It’s a huge industry and there’s absolutely no handling or control for the state, it’s crazy,” Cialino said.
– CNBC Nadine Al-Bawabi And Angelica Serrano-Roman
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