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A US Treasury agency highlights the growing use of Bitcoin among child predators and human traffickers, Tether relocates to El Salvador, and Argentinians continue to fight inflation with stablecoins.
A new analysis by the Financial Crimes Enforcement Network (FinCEN) has revealed that reports of human trafficking and child sexual abuse material involving crypto have increased sixfold in one year.
In its latest Financial Trends Analysis, published this week, FinCEN showed that in 93 percent of these reports where crypto is involved, Bitcoin is the primary asset used.
Under the Anti-Money Laundering Act 2020, FinCEN is required to publish threat pattern and trend information derived from suspicious activity reports filed by financial institutions (FIs) under the Bank Secrecy Act (BSA).
In its latest analysis, FinCEN reviewed reports of suspected human trafficking and child sexual abuse material cases involving crypto from 2020 and 2021.
In 2020, FinCEN received 336 of these reports, and in 2021 it received 1,975.
Source: FinCEN
From 2020 to 2021, the total value of transactions referenced in these reports more than doubled from $133m $278m.
However, as noted by FinCEN, this increase was almost entirely due to a single high-value report (covering $163m in transactions) that was received by the agency in June 2021.
Without this report, the total value of the reports received in 2021 would have been lower than the total value of the reports received in 2020.
In both years, cases involving child sexual abuse material made up the vast majority of the reports, with only a small minority involving human trafficking and child sexual abuse in combination.
Source: FinCEN
How is crypto used by traffickers and predators?
FinCEN’s report breaks down the suspects' use of crypto into four types, which may be combined with one another.
These four types are not exhaustive, FinCEN notes, but they are the most common ones identified in suspicious activity reports received in 2020 and 2021.
The first is the use of crypto on darknet marketplaces that distribute child sexual abuse material.
Darknet marketplaces are websites that are only available in anonymised networks that require specific software to access, such as The Onion Router (Tor) browser.
More than 600 reports identified the same 13 darknet marketplaces trading in child sexual abuse material, making this the most common venue for buyers and sellers.
Next, peer-to-peer (P2P) exchanges were the second most common way to trade in this material and to fund human trafficking.
Individuals offering P2P exchange for illicit purposes usually work “informally”, the report notes, advertising their services in online ads, on social media or through word of mouth.
P2P exchanges allow fiat currencies to be exchanged for crypto, or for crypto to be exchanged for crypto, to complete illicit transactions.
The final two most common types of illicit usage were crypto mixers and crypto kiosks, also known as crypto ATMs.
As noted in Vixio’s reporting on Tornado Cash, mixers allow users to transfer crypto to anywhere in the world while obscuring the source and destination of funds.
Crypto kiosks, meanwhile, allow users to deposit fiat currency to crypto or vice versa, or to exchange one crypto for another.
Priorities for US agencies
In June 2021, FinCEN identified human trafficking as a government-wide priority in anti-money laundering and counter-terrorism financing (AML/CTF) policy.
In September that year, it also published a notice calling agencies’ attention to an increase in child sexual exploitation online.
Various legislative efforts are also underway to target these crimes. Last month, Representative Scott Fitzgerald (R-WI) introduced the Combating Money Laundering in Cyber Crime Act.
If adopted, the bill would lead to the launch of a five-year multi-agency pilot involving FinCEN, the Department of Justice, the Department of Homeland Security and the Internal Revenue Service.
Under the pilot, these entities would be permitted to voluntarily share information related to illicit activity stemming from digital assets with the private sector.
Tether relocates to El Salvador
This week, Tether CEO Paolo Ardoino revealed that he has relocated to El Salvador following the re-election of President Nayib Bukele.
Ardoino posted a picture of his “new home” on X, also stating his exact location as the Garten Hotel in El Zonte, a town on the Pacific coast close to San Salvador.
The Tether CEO was joined a few days later by Howard Lutnick, CEO of Cantor Fitzgerald, a major custodian of Tether’s US Treasury bills.
On Wednesday (February 14), Lutnick met with Bukele at the National Bitcoin Office of El Salvador, which coordinates all of the government’s Bitcoin projects.
Last month, as covered by Vixio, Lutnick travelled to Davos for the annual meeting of the World Economic Forum, where he assured investors that Tether reserves are fully accounted for (although they have never been audited).
Tether has had a close relationship with El Salvador since September 2021, when Bukele began buying Bitcoin using public funds.
Since then, Tether has announced various investments in El Salvador, including participation in a $1bn investment called "Volcano Energy", which will be the world’s largest Bitcoin mining farm.
In December 2023, Tether also announced that it will be sponsoring a new "El Salvador Freedom Passport" in partnership with the Ministry of Foreign Affairs.
For a fee of $1m, to be paid in either US dollars or Bitcoin, up to 1,000 individuals each year can purchase an El Salvadoran passport for themselves and their family members.
Argentinians flock to stablecoins on monthly payday
In Argentina, concerns over Tether’s financial health come second to the country’s inflation crisis, with prices rising more than 250 percent year-over-year in January, according to the central bank.
This week, a new report by Bitso, the largest crypto exchange in Latin America, showed that Argentinians purchase and hold more US dollar stablecoins than any other country in the region.
In H2 2023, 60 percent of Argentina’s crypto purchases were for US dollar stablecoins (primarily Tether and Circle), compared with only 13 percent for Bitcoin.
Julián Colombo, general director of Bitso Argentina, also noted that in the first week of every month, there is a 10 percent surge above the average crypto trading volume in the country.
“This habit coincides with the payment of salaries,” he said. “It protects from currency devaluation.”
