Friday's Final Word | week 5

Welcome to another edition of our Financial Crime Newsletter where we delve into the most important developments in the sphere, from the normalisation of crypto to big AI questions. Stay tuned and have a great day!

???China revises AML rules to include crypto transactions

???The promise of CBDCs in the fight against financial crime

???Should four people be able to control the equivalent of a nuke?

?????Trial sheds light on alleged Bitcoin laundering in ￡5 billion case

???How the EU’s crypto regulation is normalising the industry

????Game theory of financial crime: policy takeaways from Bitcoin

China is revising its AML rules to include crypto transactions

Crypto is coming under further scrutiny as China, in a similar fashion to the EU, is moving forward to include crypto-transactions in its anti-money laundering regulations. This comes more than 2 years after the country imposed a comprehensive ban on crypto. However, as Chinese users have found creative ways to access the crypto market, it was necessary for policy makers to come up with an updated AML regulatory package. This new inclusion is a sort of admission that crypto is still present, and that the Chinese state has not changed its anti-crypto sentiment. It is to be decided if this new regulation will change crypto becoming a mainstream trend.

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The promise of CBDCs in the fight against financial fraud

Could CBDCs (central bank digital currencies) prove useful in the fight against financial crime? Well, according to Quant CEO, Gilbert Verdian, they might potentially be the best tool to prevent fraud as this blockchain-based currency is easily programmable. Under the UK’s new PSR (Payment Systems Regulator) rules, a quick remedy for authorized push payment (APP) scams is already possible; however, CBDC’s solution wouldn’t have to come after the fact as the large pool of data would enable proactive moves. While the quick solutions to fraud might make CBDCs an efficient, and therefore attractive tool, the question remains whether the benefits outweigh the potential privacy issues.

AI Opinion – should four people be able to control the equivalent of a nuke?

As AI moves from science fiction to science fact, the world must be ready to adequately deal with the consequences. Regulators are aiming to achieve exactly that, however, in a world of powerful Big Tech, the allure of fast innovation often seems to become the dominant interest. Nonetheless, regulation must be strongly present because while the potential benefits are real, the chances for devastating effects are equally part of the equivalent.? In this opinion piece, Will Hurd, former OpenAI board member, delves into the features which, according to him, an efficient AI regulation must have, from legal accountability to digital ownership challenges.

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London trial sheds light on alleged bitcoin laundering in ￡5 billion fraud case

While touted by fans as a better alternative to today’s flat currencies, there are those who are more critical of Bitcoin’s promise, citing the many criminal activities that has been enabled by the crypto currency. This week marks the unfolding of another criminal case in the UK where Wen Jian is accused of laundering over ￡5 billion worth of criminal proceeds via the currency. While she is not thought to have participated in the underlying fraud scheme that defrauded investors in China between 2014 and 2017, she is on trial for having cleaned the money via property purchases and buying of expensive jewelry. The case is just one more on a long list of issues that is tainting the industry.?

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How the EU’s crypto regulation is normalising the industry

One of crypto’s main selling points is its anonymity, however, with the EU’s new provisional agreement on stricter legislation on anti-money laundering, the crypto sphere would have to drop secrecy in order to increase security. This has caused some unease in the industry, a space generally fearful of scrutiny, however, there are some who view the potential change as something positive, leading to a normalization of the industry. As the next target audience for crypto-asset service providers is the general public, such an invitation into the regulated world might indeed be a development deserving more smiles than frowns.

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Opinion – Game theory of financial crime: policy takeaways from Bitcoin

Somewhat contradicting another story that has made it to the newsletter of this week, a 2023 report by TRM Labs found that Bitcoin is no longer the preferred crypto asset for criminal activity. This opinion piece explores the ramifications of this finding, and in turn how policy makers should regulate the industry, turning to perspectives from game theory, citing the “holistic and nuanced view” such a perspective could bring. One of the main points is the need to shift towards proactive regulating, instead of today’s “whack-a-mole” approach where the crime is committed first and then the regulation comes retroactively. Bitcoin’s reduced role in criminal activity proves that crime syndicates are rather fluid in their choice of tools they are using, and consequently, regulators should aim for the same flexibility.

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