Opinion: Mike Haley, CEO of CIFAS
The crypto industry is revolutionizing the world of finance, but underneath the surface there is a bubble of potential reality. Cryptocurrency fraud, which reached record levels, reportedly accounted for $9.9 billion in 2024.
Whether it’s the form of “old wine in new bottles” scams such as ponzies and pump and dump schemes, or new crypto-specific scam typology like address addiction, the global scam outbreak will lash out on the industry and undermine consumer confidence.
Criminals are increasingly abusing the sector to wash out fraudulent income generated in the traditional finance (TRADFI) sector. This creates compliance challenges to help businesses stay pace with evolving anti-money laundering (AML) rules. After all, almost 90% of UK crypto registration applications failed due to weak AML and fraud controls.
Abuse of the Crypto Sector
This abuse of the crypto sector is unaware of the industry working hard to clean up images in the eyes of global regulators, many of whom are trying to regulate the sector across AML boundaries. The efforts by individual companies, such as tools to flag industrial fraud and disruptive operations, are admirable, but they could be isolated and restricted.
The industry needs a bolder approach to anti-financial crime data sharing.
Cross-sector public-private data sharing to tackle fraud is becoming the norm for TRADFI sector. Whether it’s mandatory anti-SCAM data sharing between Singapore’s financial services and telecoms, or in the case of industry-driven voluntary schemes in Australia and the UK, data sharing is globally accepted as one of the key defenses against global fraud.
Related: Blockchain Compliance Tools Can Reduce Cradfi Costs: ChainLink Co-Founder
By combining dots along the fraud value chain, you can only place dents in this global wave of crime. As fraud adapts to new financial situations internationally, what is missing in this chain is the digital asset community. Bringing communities into existing data sharing efforts will not only help build a strong ecosystem, but will benefit the industry itself.
Theory of Behavior
There are three things the industry should do.
First, the current limited use of cryptography as a mainstream payment medium means that even the most dedicated cryptography criminals cannot exist in isolation. Ramping and off-ramping between cryptocurrencies and fiat currencies is a key intervention point in the fight against crypto-related fraud. Failure to share data will hinder effort, as neither side of the page does not look at the big picture.
Second, using crypto in a fraudulent laundry chain creates an AML challenge. As regulators crack down on exchanges and new rules begin to bite, the industry needs to build defenses against the laundry of fraudulent revenues. This cannot be done without the critical data flow needed to find an individual enters his or her ecosystem. Data is data that needs to further increase the value chain.
https://www.youtube.com/watch?v=vlicokjsip8
Third, while there is a growing will to tackle fraud within the digital asset community, compliance as a profession within the sector is an early discipline. The industry will benefit from hard data and the experience of fraud prevention specialists established across other sectors.
The arguments in favour of data sharing through the industry to prevent crypto-related fraud are clear, but what is needed to implement the theory?
Accelerating collaboration
The UK offers a potentially kind policy environment for its first foray into cross-sector data sharing in the industry.
From a legal standpoint, the UK privacy regulator’s office of intelligence commissioners recently stated, “data protection is not an excuse when tackling fraud or fraud.” This is particularly relevant to recent crime. One of them was a scammer who stole $1.2 million by spoofing law enforcement and a host of crypto wallets to trick victims into revealing personal information.
https://www.youtube.com/watch?v=t06mvwz6ngm
Coupled with recent legislative changes to the data privacy regime in the form of data (usage and access) law, the legal debate on establishing crime prevention as “recognized legitimate interests” – sharing was not clear.
Second, the UK’s digital asset regulations regulated regulatory horizon provides carrots and sticks for fraud prevention and data sharing. The UK Prime Minister’s announcement on future regulations strongly suggests that the digital asset industry will be bound by the same consumer protection regulations as the TRADFI sector. It is difficult to imagine UK consumer protection against fraud without the data sharing elements across industries.
Carrots also exist in the Financial Conduct Authority (and the stated future digital asset regulator).
Finally, the UK has a rich and established financial crime data sharing ecosystem with robust public-private, intra-industrial and interdisciplinary collaboration, including a joint moneying intelligence task force. The launch of these initiatives in the digital asset industry has already begun and could accelerate with some government and regulatory support.
The crypto and digital asset communities are too familiar with the reputation and regulatory risks posed by fraud emergency. However, awareness alone is not enough, and efforts should not be silent. Cross-industrial data sharing is a key enabler of effective fraud prevention around the world. Given the UK’s facilitating environment, it is uniquely placed to guide it by example.
Opinion: Mike Haley, CEO of CIFAS.
This article is for general informational purposes and is not intended to be considered legal or investment advice, and should not be done. The views, thoughts and opinions expressed here are the authors alone and do not necessarily reflect or express Cointregraph’s views and opinions.
