Mainichi Shimbun, one of the most influential and oldest newspapers in Japan founded in 1872, reported that more than 30 billion yen, worth about $270 million, were laundered through cryptocurrency exchanges by organized crime groups in Japan since 2016.
Cryptocurrency Main Source of Money Laundering
In Japan, organized criminal groups dominate the underground economy, with the Yakuza, an organized crime syndicate in Japan that has been in existence since the 17th century, housing more than 102,000 members. The government, police, and organized crime syndicates co-exist in Japan, as the Yakuza and organized crime syndicates are technically legal.
A report by The Economist revealed that the Yamaguchi-Gumi, the biggest syndicate within the Yakuza, has made more than $6 billion annually over the past decade from drugs, loan-sharking, real-estate rackets, and stock trading. Hence, the crime organization has demonstrated a higher profit margin than most of the country’s largest conglomerates in the technology and finance sector.
The week beginning May 14, Mainichi Shimbun reported that its report has found that many of Japan’s crime syndicates have utilized cryptocurrency exchanges and privacy-focused cryptocurrencies such as monero and zcash to launder money. In one case, Mainichi’s investigation found that more than $270 million was laundered through cryptocurrency exchanges, which were likely generated through drug trafficking and illegal activities.
Mainichi established a line of communication with one of the gang members in Japan’s most prominent crime syndicate to investigate into the presence of cryptocurrency in the country’s major criminal groups. A USB retrieved by Mainichi, which was entitled “ZDM,” short for zcash, dash, and monero, revealed that one gang laundered 29.85 billion yen ($270.8 million) since 2016 via hundreds of transfers.
The gang member told Mainichi that the organization intended to process more funds through local exchanges but limited the trades at 29.85 billion yen to refrain drawing any attention from the authorities, especially the Financial Services Agency (FSA).
Japanese Government Crackdown on Anonymous Cryptocurrencies
Since April 30, the Japanese government and the FSA have been pressuring cryptocurrency exchanges to remove support for anonymous cryptocurrencies dash, monero, and zcash to prevent crime syndicates and the country’s gangs from taking advantage of cryptocurrencies to funnel hundreds of millions of dollars.
“It should be seriously discussed as to whether any registered cryptocurrency exchange should be allowed to use such currencies,” said the FSA, noting that cryptocurrency exchanges may have difficulties obtaining licenses to operate as financial service providers with support for dash, monero, and zcash.
A senior official at FSA, who asked to remain anonymous, told Mainichi that “everyone” in the cryptocurrency market is aware the three cryptocurrencies mentioned above are the go-to cryptocurrencies for criminal groups and organizations.
“It’s a typical money laundering scheme. In a way, I’m not surprised. If you are going to do something illegal, then everyone knows to use the ‘three anonymous siblings,’” said the official, who added that Japan’s crackdown on anonymous cryptocurrencies is not enough and the global market would have to support Japan’s decision to prevent cryptocurrencies from being used to finance illegal operations.
“It’s nearly impossible for Japan to handle the problem alone. Even if trade is restricted to only domestic transfers or monitoring is enhanced, it’s still not enough to counter money laundering. It would be best if all the group of 20 industrial and emerging nations and regions (G-20) would take the same steps toward prevention,” the official added.
However, the US and other regions like South Korea are not planning to follow the roadmap established by Japan in banning anonymous cryptocurrencies. Recently, as BTCManager reported, one of the largest cryptocurrency exchanges in the US became the first licensed zcash exchange.
Cameron Winklevoss, the CEO at Gemini, explained that regulators would be able to get comfortable with anonymous cryptocurrencies with the right systems in place.
“Part of the reason a coin like Zcash has a smaller market cap is because people are not sure if regulators will ever get comfortable with this type of technology. Today demonstrates that through education and collaboration and with the right controls in place, regulators can get comfortable with privacy technology,” said Winklevoss.
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