Bitcoin and other cryptocurrencies have often been cited as being a major conduit for money laundering and terrorist financing offences, not least because of the pseudonymity it affords its users. As a result, national regulators have taken notice of these underlying risks, subsequently laying pressure on third party exchange platforms that deal with fiat money to ensure they identify their customers. However, in a further blow to the digital currency’s legitimacy, a New York woman has plead guilty to using Bitcoin and other cryptocurrencies to fund terrorist activities.
The report, published by CNBC, concerns Zoobia Shahnaz, 27, of Brentwood in Long Island, New York. In total, it is believed that Shahnaz transferred more than $150,000 in illicit proceeds to global terror organization ISIS. The U.S. Attorney’s Office for the Eastern District of New York claim that the transactions were facilitated in 2017 and the end destination of the funds included Turkey, China and Pakistan.
Credit Card Fraud Turns in to Laundering of Cryptocurrency Funds
The story begun when Shahnaz, who was previously employed as a lab technician and was believed to in receipt of a $71,000 annual salary, defrauded a range of U.S. based financial institutions. The likes of American Express, Discovery and Chase Bank provided the criminal with six credit cards based on the information she provided in her application. It was also established that Shahnaz was able to fraudulently obtain a bank loan in the region of $22,500.
Shahnaz then proceeded to use the fraudulently -obtained cards, alongside a plethora of other credit cards that were registered in her own name, to purchase cryptocurrencies from third party exchange platforms. The prosecutor for the case stated that once the cryptocurrencies were purchased, they were then exchanged for U.S. dollars and subsequently, transferred back in to a bank account that Shahnaz controlled.
Once the funds arrived in Shahnaz’s domestic bank account, she then begun transferring the criminal proceeds to several overseas jurisdictions, ensuring that the value of each transfer was below reporting requirements. In the U.S., this amounts to $10,000.
Caught at JFK Airport
U.S. law enforcement agencies took an interest in Shahnaz when they discovered highly suspicious internet search activity. This included searches that related to the terrorist organisation ISIS. Searches centered on financiers and recruiters for the organization, as well as maps in high-risk areas along the Syria-Turkey border.
Law enforcement eventually stepped in when Shahnaz attempted to board a flight from New York to Pakistan, with the end destination set for Turkey. Authorities believe that the final leg of the trip was destined for nearby Syria – a somewhat hot spot for ISIS recruitment. When Shahnaz was intercepted at JFK Airport, she was found to be carrying $9,500 in cash – just $500 below the reporting requirement of $10,000.
KYC Controls can no Longer be Ignored
It remains to be seen what, if any, customer due diligence controls the unnamed cryptocurrency exchanges requested from the criminal. Whilst on a global basis legislation is still in its infancy, the U.S. expects all third party cryptocurrency exchanges that deal with fiat currency to identify its customers. KYC (Know Your Customer) practices most commonly require new customers to provide basic personal information, as well as an upload of government issued ID such as a passport or driving license.
However, larger trading volumes, such as the amounts laundered by Shahnaz, require an enhanced level of customer due diligence, in-line with the inherent risks that the transaction may present. As a result, if the exchanges in question were U.S. based, then it is almost certain she would have been required to supply a range of personal information. Ultimately, if Shahnaz used credit cards that were not in her name, it also remains to be seen how she was able to initiate both a fiat deposit and withdrawal, unless fraudulent identification was supplied.