More corrupt countries tend to have more people using cryptocurrencies.
This is confirmed by a recent study by the International Monetary Fund (IMF), which interviewed thousands of people in 55 countries. When those countries also have strict capital controls that make it harder to move money overseas discreetly, there are even more crypto users.
Accordingly, the alliterative authors of “Crypto, corruption and capital controls: correlations between countries” conclude that crypto-assets are likely used to move ill-gotten gains offshore.
This discovery, they said, adds to the case for stricter international regulation of cryptocurrencies – particularly Know Your Customer (KYC) regulations which require the identification of crypto exchange customers, rather than the more laissez-faire approach that characterizes part of the crypto industry.
The issue has been in the news lately, as regulators and elected officials argue that Russian oligarchs who support President Vladimir Putin’s invasion of Ukraine may be turning to crypto.
Pointing to a warning from the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) that oligarchs “may attempt to use cryptography and anonymization tools to evade U.S. sanctions and protect their assets around the world,” the senator Elizabeth Warren (D-Mass.), a frequent crypto critic, announced legislation to do just that at a Senate Banking Committee on March 17. audience.
Although she received numerous reactions from various experts who said that it was neither practical nor, in many cases, possible to hide the billions of dollars they would move, the central point of Warren is one that has been a big topic of debate. before the Russian-Ukrainian war.
Read more: PYMNTS Crypto Crime Series: When Privacy Matters, Crypto Users Turn to Mixer Services
That said, in highly corrupt countries, it is often not just the super-rich, but also those in middle power, who collect bribes, embezzle funds, and cheat on taxes. Sums under $1 million are also much easier to obfuscate.
Nonetheless, as the senator’s critics have pointed out, highly corrupt countries with strong capital controls — those with criminals in power and tight regulatory scrutiny — are almost by definition more oppressive.
See also: Use in Ukraine Brings Some Shine to Dark Side of Crypto in Senate Hearing
Pushing back against demands from the Ukrainian government to ban all Russian customers, not just those under sanction, Coinbase CEO Brian Armstrong refused, saying on Twitter that “ordinary Russians are using crypto as a lifeline now that their currency has crashed. Many of them are probably against what their country is doing, and a ban would hurt them too.
Repel to Repel
What sets the work of the IMF researchers apart is that they tried to take into account other factors that could affect the results. Among these was “whether crypto-assets are more likely to gain traction in countries where the local currency has historically not been a safe store of value.”
This has long been a rallying point for opponents of tougher crypto regulation. They often point to Venezuela, where bitcoin has grown in popularity as hyperinflation has made the bolivar so useless that wads of cash have been thrown to the side of the road.
Another factor was the increasing success of authorities in tracking bitcoin transactions back to their supposedly pseudonymous senders and receivers.
Besides the fact that such investigations are labor intensive and usually require an error to exploit, the authors pointed out that while cash provides “total anonymity and large denominations have long been considered an aid to crime and to tax evasion, crypto-assets in their current form make it possible to move even larger quantities quickly and with greater ease, including across national borders.