Money Laundering Cryptocurrency and Bitcoin Penalties and Laws

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A man who is alleged to have directed a money laundering criminal syndicate which converted over five million dollars’ worth of Bitcoin into cash, has been arrested and charged by police.

The New South Wales Crime Command’s Cybercrime Squad established Strike Force Curns in order to investigate criminal syndicates involved in cyber-enabled money laundering.

The Strike Force’s detectives arrested, Yi Zhong, a 30-year-old man following a vehicle stop at Homebush Road, Strathfield.

The vehicle search had uncovered two bags containing $1 million cash, which was subsequently seized by detectives.

The same morning, a search warrant was executed on Zhong’s house in Wentworth Point.

Investigators seized over one kilogram of methylamphetamine, cocaine, mobile phones, a laptop, electronic storage devices and cash.

“This is the first phase of arrests and it is anticipated further arrests will be made over the next four weeks as the evidence gathered is collated and assessed,” said Cybercrime Squad Commander Detective Superintendent Matt Craft.

“The message is clear, the fact you deal in cryptocurrency does not place you beyond the reach of the NSW Police Force.” he continued.

Mr Zhong was charged with 24 offences including; 19 counts of knowingly deal with proceeds of crime intent to conceal, knowingly deal with proceeds of crime, knowingly direct activities of criminal group, supply prohibited drug, take part supply prohibited drug (large commercial quantity) and take part supply prohibited drug (commercial quantity).

The man was refused bail and appeared before Burwood Local Court, where he was formally bail refused to appear at Central Local Court on Monday 19 April 2021.

Police will allege the group were operating as money launderers for hire.

Money laundering is the process by with ‘dirty money’, which has come about as a result of a crime, is converted into ‘clean money’ for personal use.

The rise of cryptocurrency has presented challenges for law enforcement, in that the anonymity of bitcoin transactions can often inhibit investigations.

Cryptocurrencies are becoming increasingly popular as a decentralised and anonymous means to make transactions. However, digital currencies can also be used to launder funds illegally.

The following outlines what cryptocurrencies are and how they can be used to launder money illegally, it concludes with a detailed account of the possible offences which could apply to money laundering using digital currencies.

Click here for the definition and laws on money laundering generally.

Table Of Contents

What is Cryptocurrency?
Money Laundering Through Cryptocurrency
Money Laundering Through Bitcoin in New South Wales

What is Cryptocurrency?

Cryptocurrency is a form of digital or virtual currency that relies on cryptography to ensure the security of transactions. Unlike traditional currencies issued by governments, known as fiat money, cryptocurrencies operate on decentralised networks, primarily using blockchain technology. This decentralisation means that cryptocurrencies are not controlled by any central authority, such as a bank or government, allowing for peer-to-peer transactions without intermediaries.

At the core of most cryptocurrencies is blockchain technology, a distributed ledger that records all transactions made with a particular cryptocurrency. This ledger is maintained by a network of computers, known as nodes, which work together to validate and record each transaction in a block. Once a block is added to the chain, it becomes a permanent part of the ledger, ensuring transparency and security.

One of the notable features of cryptocurrency is the degree of anonymity it offers. While the transactions themselves are recorded on the blockchain, the identities of the individuals involved are often pseudonymous. This means that while the transaction details are public, they are not directly linked to the real-world identities of the users.

Both the features of anonymity and decentralisation, make cryptocurrencies an attractive option for would be money launderers.

Money Laundering Through Cryptocurrency

Money laundering refers to the process by which illicitly obtained funds are transformed into seemingly legitimate assets. This practice is integral to various criminal activities, including theft, fraud, drug trafficking, sex trafficking, bribery, and corruption. The goal of money laundering is to obscure the origins of the illicit funds, thereby integrating them into the legitimate financial system.

The Australian Transaction and Analysis Centre or AUSTRAC is the primary financial intelligence agency in Australia, and has raised concerns about the use of digital currencies, including cryptocurrencies, to launder money.

The primary objective of money laundering is to obscure the identity of the owner and the source of these funds by passing them through a series of transactions and services. Money laundering via cryptocurrencies involves three distinct stages: placement, layering, and integration.

During the placement stage illicit proceeds in fiat currency (such as Australian dollars) are converted into cryptocurrency via a digital currency exchange. Whilst digital currency exchange providers are meant to register and report to AUSTRAC if operating in Australia to ensure conversion to digital currencies are monitored, some exchange providers do not provide full details of transactions meaning they are not effectively identified for laundering risk. Failing to comply with anti-money laundering reporting requirements could result in severe penalties, including fines of up to $27 million for corporations and $5 million for individuals.

Once illegal fiat currency is converted to cryptocurrency it can be ‘layered’ by utilising the currency in various transactions to obscure the line between illicit and legitimate funds. This is made easier via cryptocurrency given the anonymity of transactions.

Finally, the now layered cryptocurrency undergoes integration by being used to purchase goods and services or reintegrated into the traditional financial system. This means the laundered money acts like its legitimate counterpart with law enforcement unable to link these fresh transactions to prior illicit activity.

New South Wales Money Laundering Offences

There are several offences under the Crimes Act 1900 (NSW) dealing with money laundering, these include:

The offence of dealing with the proceeds of crime, knowing that it is proceeds of crime and with intent to conceal this fact under section 193B(1) of the Act. This offence carries a maximum penalty of 20 years imprisonment.
The offence of dealing with the proceeds of crime, knowing that it is proceeds of crime under section 193B(2) of the Act. This offence carries a maximum penalty of 15 years imprisonment.
The offence of dealing with the proceeds of crime, being reckless that it is proceeds of crime under section 193B(3) of the Act. This offence carries a maximum penalty of 10 years imprisonment.
The offence of dealing with the proceeds of general crime, being reckless that it is proceeds of crime and intending to conceal or disguise features of the property under section 193BA of the Act. This offence carries a maximum penalty of 15 years imprisonment.

Defences to NSW Money Laundering

It is a possible defence to the above charges if a person neither knows or is reckless to the probability that the funds are proceeds of crime, or if the funds are, in fact, not proceeds of crime.

However, the Act notes that there will be reasonable grounds to believe that property is proceeds of crime if dealing with the property appears to be done to avoid oversight and reporting requirements to identify laundered money. The conversion of fiat currency into digital currencies, including cryptocurrencies, could raise the suspicion that funds are being converted in order to avoid oversight by law enforcement.

Meaning of ‘Proceeds of Crime’

The definition of ‘proceeds of crime’ is any property that is substantially derived or realised, directly or indirectly, by any person from the commission of a serious offence according to section 193A of the Crimes Act.

Federal Money Laundering Offences

There are also a number of offences under the Federal Criminal Code Act 1995 (Cth) dealing with money laundering applicable to the Commonwealth being all States and Territories of Australia, including:

Knowingly dealing with proceeds of crime or intending to use money or property as an instrument of crime under section 400.2B(1) of the Code, which carries maximum penalties ranging from life imprisonment for proceeds valued over $10 million to five years’ imprisonment for proceeds valued over $1,000.
Recklessly dealing with proceeds of crime or risking that the money or property becomes an instrument of crime under section 400.2B(4), which carries maximum penalties ranging from 15 years’ imprisonment for proceeds valued over $10 million to two years’ imprisonment for proceeds valued over $1,000.
Negligently dealing with proceeds of crime or money or property that may become an instrument of crime under section 440.2B(7), which carries maximum penalties ranging from six years’ imprisonment for proceeds valued over $10 million to one year for proceeds valued over $1,000.
Dealing with money or other property that is valued at $1m or more when dealing with it, and the accused believes it to be proceeds of indictable crime or intends that the money or property will become an instrument of crime. This carries a penalty of up to 25 years imprisonment or 1500 penalty units or both pursuant to section 3(1) of the Criminal Code.
Dealing with money or other property which at such time is valued at $1m or more, and it is proceeds of indictable crime, or there is a risk that it will become an instrument of crime, and the accused person is reckless as to the fact that it is proceeds of indictable crime or the fact that there is a risk that it will become an instrument of crime. This carries a penalty of up to 12 years imprisonment or up to720 penalty units, or both pursuant to section 400.3(2) of the Criminal Code.
If the value is $100,00 or more, the maximum penalty of 20 years imprisonment applies pursuant to section 400.4 of the Criminal Code.
If the value is $50,00 or more, the maximum penalty of 15 years imprisonment applies pursuant to section 400.5 of the Criminal Code.
If the value is $10,00 or more, the maximum penalty ranges from of 2 years imprisonment to 10 years imprisonment pursuant to section 400.6 of the Criminal Code.
If the value is $1,000 or more, the maximum penalty ranges from 12 months to 2 years imprisonment pursuant to section 400.7 of the Criminal Code.
Section 400.9 of the Criminal Code criminalises the dealing with property reasonably suspects of being proceeds of crime with maximum penalties ranging from 2 years to 5 years imprisonment pursuant.

The Code also criminalises instances in which a person is reckless or negligent to the fact that the money or property is proceeds of crime, or where there is a risk that it will become an instrument of crime. The variants in maximum penalties reflect this.

Money Laundering Through Bitcoin in New South Wales

As you now know, proceeds of crime refers to any money or property that is gained by a person, whether directly or indirectly, from criminal activity.

In NSW, “property” is understood as real and personal property.

This includes money, valuable securities, debts, and legacies; and all deeds and instruments relating to, or evidencing the title or right to any property, or giving a right to recover or receive any money or goods.

It includes not only property originally in the possession or under the control of any person, but also any property into or for which the same may have been converted or exchanged, and everything acquired by such conversion or exchange, whether immediately or otherwise.

In NSW, section 193C of the Crime Act 1900 outlines the penalties for dealing with proceeds of crime.

It states that a person who deals with property and there are reasonable grounds to suspect that the property is proceeds of crime which has a value of $100,000 or more can face a maximum penalty of five years in jail pursuant to section 193C(1) Crimes Act.

Where such a proceeds of crime offence takes place and the value of the property is:

$5 million or more, the maximum penalty of 8 years imprisonment applies,
$100,000 or more but less than $5 million, the maximum penalty of 5 years imprisonment applies,
Less than $100,000, the maximum penalty of 3 years imprisonment applies.

The offence of money laundering under section 193B prescribes up to 20-years imprisonment even if it is via bitcoin where a person deals with proceeds of crime, knowing it is and intends to conceal it i.e. to conceal it via bitcoin.

Defences to the section 193 offences include, circumstances where the defendant satisfied the court that he or she had no reasonable grounds for suspecting that the property was substantially derived or realised, directly or indirectly, from an act or omission constituting an offence against a law in force in Australia or another country.

For tailored advice specific to your case type of advice and guidance, it is highly recommended to speak to a money laundering lawyer from our Sydney team.

By Jimmy Singh and Jarryd Bartle.

Published on 06/03/2021