Government authorities have long warned about cryptocurrency and corruption, insisting that cryptocurrencies’ pseudonymity makes them a potential vehicle for illegal money transfers and flows of corruption proceeds. Some claim pseudonymity is not, in fact, the technology’s intrinsic feature but rather a choice made in the practice and design of most currently existing cryptos.
According to a recent report on cryptocurrency and corruption by the IMF, crypto has enabled the movement of more funds than what was possible with cash, which guarantees full anonymity. Criminals can move large amounts of money quickly and easily, including across national borders.
What is the connection between cryptocurrency, corruption, and developing countries? Bankless Times tries to explore it.
Corruption and cryptocurrency adoption across the globe
The IMF considers it urgent to present empirical data on cryptocurrency and corruption. It carried out a global study on whether crypto facilitates corruption. The organization concedes that digital assets in the form of central bank digital currencies could offer additional safety, resilience, and availability at a lower price.
One could use these technologies to make procurement more transparent and improve record-keeping for government project payments. The IMF’s statistical analysis shows that crypto adoption in countries with stricter capital control and weaker corruption control is higher. This suggests a strong link between cryptocurrency and corruption, with the former being used to evade capital control and transfer illegal proceeds.
Crypto and organized crime: the connection
Transparency International also has input on cryptocurrency and corruption. The agency says organized crime groups (OCGs) are increasingly using cryptocurrency to conduct illegal activities. They can exploit the decentralized and pseudonymous nature of cryptocurrencies to perpetrate money laundering and other corruption-related crimes. Criminals can use the DeFi system instead of the traditional banking system to move large amounts of money because it comes with a lower risk of being caught.
Cryptocurrency can be used for all kinds of crimes that involve transferring assets. It is not limited to cybercrime. These crimes include evading sanctions, money laundering, bribery, embezzlement, etc.
The limits on using crypto in criminal activity
There are some limitations associated with the criminal use of cryptocurrencies, which affects cryptocurrency and corruption. Digital asset value is often volatile, which contributes to criminals’ reluctance to use these assets for long-term investments. In every event, international watchdogs and agencies can help mitigate the link between cryptocurrency and corruption and reduce the criminal use of cryptocurrencies.
They can do this by supporting platforms for public-private partnerships, encouraging bilateral and multilateral coordination to share experience, and helping develop and implement regulatory and legislative frameworks.
At the same time, it can be costly for governments to limit cryptocurrency and corruption. They will need to check if using the resources to improve conventional law enforcement practices is more feasible. The use of cryptocurrency for criminal activity might be increasing, but illegal cryptocurrency transactions are only a small part of the black and grey economy, still much smaller than cash.
Crypto’s potential for development
Academic Alberto Asquer said in an interview with Times Higher Education that crypto may have real development potential beyond cryptocurrency and corruption. He reminds us that blockchain is more secure and reliable than paper records and that developing countries should have some form of digital record of monetary transfers. He also pointed out crypto’s important role in improving financial inclusion. It has made accessing financial tools and resources easier for people in developing countries.
Despite the potential, Alberto is well aware of the major challenges that institutions need to overcome. They need to make sweeping changes in domestic and international financial systems to eradicate the link between cryptocurrency and corruption. He says the frequency and impact of crypto scams undermine public understanding of cryptocurrency, which is an additional obstacle. What’s more, tracking blockchain records can be very expensive. There are huge environmental and energy costs to reckon with.
In terms of cryptocurrency and corruption, what does he think will happen five or ten years down the line? The future is uncertain, but he believes the potential upsides of crypto technology outweigh the negatives. Users are serious about crypto and the blockchain, considering how much money they have invested in blockchain technology.
