Illicit use of digital currencies is increasing, and tracking criminals’ use of bitcoin is difficult
In April 2019, Mexican police arrested suspected human trafficker Ignacio Santoyo in a plush area of the Caribbean resort of Playa del Carmen after linking him to a prostitution racket extending across Latin America.
Yet it was not the 2,000 women Santoyo is alleged to have blackmailed and sexually exploited that ultimately led to his capture, but the bitcoin he is suspected of using to help launder the proceeds of his operations, officials said.
The cryptocurrency is emerging as a new front in Latin America’s struggle against gangs battling for control of vast criminal markets for sex, drugs, guns and people, according to law-enforcement authorities.
“There’s a transition to committing crimes in cyberspace, like acquiring cryptocurrencies to launder money … and the pandemic is accelerating it,” said Santiago Nieto, head of the Mexican finance ministry’s financial intelligence unit (UIF).
Santoyo’s arrest represented an early success for a new law in Mexico — one of only two nations in Latin America, with Brazil, to enact such legislation — that seeks to tackle the intractable problem for law agencies of tracking the use of bitcoin and other cryptocurrencies designed to anonymise users.
The law requires all registered cryptocurrency trading platforms to report transfers above 56,000 pesos ($2,830). It was passed in 2018 but it took many months to implement the system, which is still work in progress.
Use of bitcoin to launder money is particularly increasing among drug gangs such as the Jalisco new generation cartel (CJNG) and the Sinaloa cartel of captured kingpin Joaquin “El Chapo” Guzman, US and Mexican authorities say.
Mexican President Andres Manuel Lopez Obrador has faced record levels of gang-fuelled violence during his first two years in office, and the prospect of cartels hiding their profits in lightly regulated spaces is a major concern.
The sums involved in the few cases uncovered are typically thousands or tens of thousands of dollars. They represent a drop in the ocean compared with organised crime’s hard cash laundry, estimated at $25bn a year in Mexico alone, according to the government and financial-intelligence firms.
Yet larger sums have begun to crop up across the region over the past three years, with a team of international police breaking up three Colombian drug gangs laundering millions of dollars via cryptocurrencies, authorities say. In Mexico, the hope is that the new rules will help snare big fish.
The only thing tougher than smuggling drugs across borders is getting the profits back to cartels, officials say. Cash is heavy, and transporting it exposes traffickers to high risk. Putting it into banking systems geared to detect dirty money is perilous, too.
Nieto said criminals typically split their illicit cash into small amounts and deposit them in various bank accounts, a technique known as “smurfing”. The threshold for banking transactions that raise red flags is $7,500.
They then use those accounts to buy a series of small amounts of bitcoin online, he added, obscuring the origin of the money and allowing them to pay associates elsewhere in the world.
In Santoyo’s case, authorities who had been pursuing him for months said they finally tracked him down after he bought enough bitcoin to trigger an alert under the new law. Moreover, when making his transactions via a registered platform, Santoyo left personal details including his phone number and address.
Between May and November 2018, Santoyo and his sister acquired about 441,000 pesos in bitcoin between them on Bitso, a trading platform in Mexico and Argentina, according to government records seen by Reuters.
Mexican authorities also have their sights set on the “Bandidos revolution team”, a gang federal prosecutors suspect of stealing millions of dollars through cyber-attacks on large banks.
In May 2019, authorities detained suspected gang leader Hector Ortiz in the central state of Guanajuato after he spent “tens of thousands of dollars” on bitcoin. That triggered the bitcoin threshold sensor, enabling investigators to trace Ortiz via his phone.