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In brief

  • Threat intelligence firm Intsights says criminals are turning to cryptocurrencies in greater numbers in Latin America.
  • Mixing services, P2P and unregulated crypto exchanges are the tools of choice to covertly wash and launder illicit funds.

Organized crime and drug cartels in Latin America are increasingly turning to cryptocurrencies to launder money and orchestrate scams, according to the latest collaborative report by threat intelligence firm Intsights and blockchain forensics firm CipherTrace. 

The report, “The Darkside of Latin America,” demonstrates how threat finance in Latin America has evolved with the rise of cryptocurrencies and peer-to-peer and unregulated exchanges. Researchers for Intsights say they arrived at their findings from access to “closed-access databases” and “hundreds of underground sources (deep web and dark web),” among other tactics.

The report claims that the region’s countries “top the list of the world’s worst money laundering nations,” and organized crime and cybercriminals are turning to cryptocurrencies to move money and to hire hackers. The report also highlights the fact that extreme political corruption in the region helps criminals operate without much resistance. 

One way criminals are specifically using cryptocurrency is through “mixing services” to obfuscate “potentially identifiable or ‘tainted’ cryptocurrency funds with others,” according to Intsights. Once “washed” through mixing services, criminals continue to trade their crypto on other exchanges to profit.

Further, criminals are laundering money through the many unregulated exchanges through Latin America, which lack the know-your-customer (KYC) and anti-money laundering (AML) policies that are commonplace in more developed countries. Criminals use these exchanges to trade Bitcoin for altcoins to further obfuscate and profit from their illicit funds. According to the researchers, they estimate that 97% percent of washed cryptocurrency ends up in places like Latin America that have “extremely lax KYC/AML regulations.” 

To compound this, criminals also turn to peer-to-peer exchanges (P2P), which remain the preferred way for criminals to exchange crypto to fiat money. The report cites P2P exchanges such as LocalBitcoins, which has relatively high trading volume in Latin America, as favorites for criminals to launder money because they ”typically lack AML programs and perform little or no KYC due diligence.” 

In recent months, P2P exchanges like Paxful and Local Bitcoins have stepped up their regulations to combat this reputation. 

The report cites the case of the now notorious Panamanian payment processing firm Crypto Capital as a prominent example of how criminals use crypto. The alleged operators of the “shadow bank” are charged with aiding drug cartels with money laundering operations between Latin America and Europe, among other misdeeds.

It’s a problem that’s unlikely to be resolved any time soon, according to the researchers, given Latin America’s lack of established anti-money laundering laws and poor enforcement of the laws that are in place.

Nevertheless, the report recommends firms that want to combat cybercrime in the region to “collect, monitor, and analyze cyber crime intelligence,” learn and “follow best security practices.”



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