Accountants urged to beware of money laundering risks with cryptocurrencies

15 Mar 2018661 Views

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Professional discretion and native suspicion of criminal activities urged as out-of-control cryptocurrency craze continues.

Professional accountants have been warned by the Association of Chartered Certified Accountants (ACCA) to get up to speed on cryptocurrencies such as bitcoin.

The profession may have to brace itself for a whole new category of book entries by businesses and entrepreneurs logging gains (and losses) from investments in cryptocurrencies if they have jumped on the bitcoin bandwagon.

‘The historical prevalence for money laundering across the border makes Ireland particularly at risk to cryptocurrencies by providing a clear route to enabling the proceeds of crime to go undetected’
– AIDAN CLIFFORD

It is a stark warning from a prestigious accounting body that represents more than 200,000 professionals and 486,000 students in 180 countries.

In particular, the ACCA urged that accredited practitioners must also be on the lookout for how cryptocurrency trading could be used to mask activities such as money laundering.

The warning comes just a day after internet giant Google banned cryptocurrency-based advertising on everything from bitcoin wallets to cryptocurrency exchanges, advice and new initial coin offers (ICOs). In January, Facebook also banned all cryptocurrency-related advertising.

The fear is that the cryptocurrency craze represents a 21st-century take on the Dutch tulip auctions of the 17th century, or the dot-com boom and bust of 2000. It is estimated that in 2017 alone, $5.6bn was raised through various ICOs.

Cryptocurrencies – or new currencies created based on the decentralised blockchain ledger – have gone from concept to proof at such an astonishing velocity that in some cases, they represent the favoured get-rich-quick, Ponzi or pyramid schemes.

And now, following on from recent comments made by the US Securities & Exchange Commission, the Bank of England, and with historical challenges of money laundering in Ireland and other countries, ACCA has called upon its Irish and global membership to take a leadership role in providing technical and ethical oversight of cryptocurrencies.

Blockchain and the bookkeepers

“Bitcoin has at least three dimensions that are causes for concern,” explained Maggie McGhee, director of professional insights at ACCA.

‘The underlying blockchain distributed ledger technology behind bitcoin could revolutionise how financial transactions are done and have a positive impact on business globally. This potential must be viewed separately from the risks of bitcoin’
– MAGGIE MCGHEE

“Firstly, its pseudonymous nature means that while one may identify the address a given payment goes to, it is not possible to confirm the identity of the underlying beneficiary.

“This is an obvious risk for money laundering, terrorist financing and the funding of other types of illegal activities. Secondly, its high volatility makes it inherently risky and unstable. Thirdly, it is funding a speculative bubble in other areas like ICOs, with speculators chasing poorly formed business propositions.”

McGhee hits on an important point: the cryptocurrency craze risks tainting our understanding and appreciation of the real potential of blockchain, one of the technologies behind it.

“It is important, however, to avoid blaming the house for the fault of the people living in it. The underlying blockchain distributed ledger technology behind bitcoin could revolutionise how financial transactions are done and have a positive impact on business globally. This potential must be viewed separately from the risks of bitcoin.

“The global accountancy profession has an important role to play in enabling stable economies and secure societies where consumers are not exploited. As new technologies become adopted, it is vital that professional accountants develop their digital understanding alongside their ethical responsibilities to flag areas of concern.”

Strange currencies

Another facet to watch for is how the myriad of new cryptocurrencies and ICOs could be used by criminal gangs to mask illicit enterprises or to engage in money laundering.

‘Cryptocurrency could bypass all the current controls and, with the pending challenges of Brexit, it could set crime detection back 20 years’
– AIDAN CLIFFORD

Could cryptocurrencies be used in the same way that the dark web and platforms such as The Onion Router (TOR) have been misused by criminal gangs to mask everything from counterfeiting to drugs trading?

“The historical prevalence for money laundering across the border makes Ireland particularly at risk to cryptocurrencies by providing a clear route to enabling the proceeds of crime to go undetected,” explained Aidan Clifford, technical director of ACCA.

“Hard-fought controls over banking, accounting, auctioneering, solicitors and dealers in high-value goods has [sic] made laundering the proceeds of crime very difficult in Ireland, and this has directly resulted in crime detection and prevention.

“Cryptocurrency could bypass all the current controls and, with the pending challenges of Brexit, it could set crime detection back 20 years.

“As an important line of defence, it is incumbent upon all accountants to be informed and knowledgeable about the evolution of these evolving assets,” Clifford urged.

Editor John Kennedy is an award-winning technology journalist.

editorial@siliconrepublic.com