As regulators globally zero in on criminals using crypto for illegal activities, peer-to-peer cryptocurrency transactions are eluding scrutiny in Japan.
Japan has struggled for years to effectively sanction personal crypto transfers.
But pressure is now mounting for the country to enact proper regulatory frameworks, and develop better tools for tracking criminal cryptocurrency activities.
In other parts of the world, financial regulators are using payment-tracing software to clamp down on illegal cryptocurrency payments and services.
China even imposed a ban on all crypto activities dreading economic instability. China had earlier sanctioned strict crypto restrictions ahead of the unveiling of China’s new digital currency — digital yuan (e-CNY) — expected to completely replace physical cash.
Criminals will (definitely) exploit digital currencies
For years, experts warned about criminals using cryptocurrencies for illegal activities such as fraud, money laundering, etc. Because crypto trading requires no proof of identification. It’s anonymous. So, criminals will definitely exploit this loophole.
Hayato Shigekawa, Chainalysis sales engineer, while displaying on a screen illegal crypto transactions of a real-world criminal organization, said the organization made multiple transfers and payments to several accounts to obscure there intended destination.
Fortunately for Chainalysis, they unmasked the faces behind each of these accounts, based on digital footprints from past criminal activities.
Back in 2019, The Financial Action Task Force — an international anti-money laundering organization — recommended crypto exchanges to share client data as a way to track down criminals when trading on their platforms.
Japan’s weak regulations governing personal transfers
Countries globally have been regulating (even banning) crypto exchanges. For example, Japan has pushed crypto exchanges, since 2017, to register with the Financial Services Agency. Its crypto industry will even issue rules on data-sharing before year-end.
But despite their best efforts, Japan fails to include scrutiny on personal cryptocurrency transactions, which don’t pass through a formal exchange — and which make up the largest digital currency transactions in the country.
Kazuyuki Shiba of the Institute for International Monetary Affairs says unless you’re dealing with a professional crypto exchange, it’s difficult to identify the faces of the people buying and selling digital assets online.
That means criminals can exploit peer-to-peer cryptocurrency transactions with ease.
Tools tracking personal crypto transfers can best remedy the situation, and help combat criminal activity. But even as hopes grow for an ideal tracing technology, criminal organizations are also upping their game and eluding authorities.
So Saito, an attorney specializing in blockchain law, said it’s impossible to come up with technology that blocks crypto transactions before they occur. But repeatedly blocking payments made to criminal organizations “can help deter crime”, he adds.
