Crypto-currencies and criminality: myth or reality?

Smartphone with Bitcoin on-screen among piles of Bitcoins.(Shutterstock ilustration image)
Updated 03 November 2019

Crypto-currencies and criminality: myth or reality?

  • A Chainalysis report published in January said that in 2018, one percent of Bitcoin transactions — the most widely used cryptocurrency — involved illegal activities

LONDON: The recent bust of a worldwide international paedophile ring using Bitcoin payments highlighted one of the key fears surrounding crypto-currencies — their use by criminals.
Social networking giant Facebook is keen to get in on the act by launching a digital currency called Libra.
But US Treasury Secretary Steven Mnuchin has aired his ongoing opposition to the move, saying many concerns remained unresolved, including “the issue of money laundering.”
Despite tighter regulations and increased vigilance by the authorities, illegal activities related to virtual currencies remained “significant,” Madeleine Kennedy, from the research firm Chainalysis, told AFP.
A Chainalysis report published in January said that in 2018, one percent of Bitcoin transactions — the most widely used cryptocurrency — involved illegal activities.
The equivalent of $600 million was also spent using Bitcoins on the dark web, a set of hidden networks where a multitude of illicit products, including weapons and drugs, are traded.
In comparison, the global turnover of drug trafficking is estimated at several hundred billion dollars.
Kennedy believes the use of Bitcoins for criminal purposes was partly based on a “misunderstanding.”
The confidentiality reputation of the most famous cryptocurrency is unrivaled, with all transactions recorded in an unforgeable public ledger, the blockchain.
But it is “more transparent than some traditional financial systems and certainly more than cash,” she added.
The British and US authorities last week announced more than 300 arrests in 38 countries as part of an investigation that led to the dismantling of an unprecedented child pornography ring.
Investigators analyzed the blockchain and succeeded in “de-anonymizing Bitcoin transactions,” according to Ron Fort, the head of criminal investigations in the US tax services.
But if Bitcoin is still the reference currency for criminals because of its popularity, they are turning to less transparent alternatives, such as Monero, which began life in in 2014, according to the European law enforcement agency Europol.
Monero’s users can remain anonymous until they need to interact with a cryptomarketing platform or invest their funds with a “wallet” — the equivalent of an account for virtual currencies.
It is phenomenon that also worries the German finance ministry, which recently published a document warning that anonymous cryptos could become “a real alternative to Bitcoin.”
Monero, whose capitalization is still 160 times lower than Bitcoin, uses a complex architecture that makes transactions “much more difficult to track,” said Kennedy.
“But no more than the many shell companies in the many tax havens,” said Emilien Bernard-Alzias, a lawyer at Simmons & Simmons, a specialist in financial markets.
“We have always seen both legal and technical arrangements to conceal money transfers from the courts,” he told AFP, adding that only cash can be considered “perfectly untraceable.”
Also, since Monero does not allow large quantities of money to be bought, criminals are encouraged to convert their funds and must therefore use service providers subject to anti-money laundering regulations.
Unlike currencies that have made anonymity a marketing feature, Facebook has repeatedly said in recent months that Libra will be transparent and comply with the authorities’ requirements.
Libra “will clearly not be ideal for laundering dirty money,” said Bernard-Alzias, although it will probably need to use blockchain analysts “to satisfy regulators,” added Kennedy.


A female entrepreneur brings crowdlending to Saudi Arabia

(Photo/Shutterstock)
Updated 25 January 2020

A female entrepreneur brings crowdlending to Saudi Arabia

  • Shariah-compliant peer-to-peer lending platform called Forus to be launched this year
  • Founder Nosaibah Alrajhi aims to help businesses and small investors in the Kingdom

RIYADH: It is no secret that small businesses struggle with obtaining funds to expand, with one avenue being particularly tricky in the region: Trying to rely on a national bank for help.
While things are improving, they are not doing so quickly enough. These longstanding problems have inspired Nosaibah Alrajhi, a former investment banker, to launch Forus, a Shariah-compliant peer-to-peer lending platform that she hopes can help bolster Saudi Arabia’s economic growth and enrich both business owners and small investors.
“It’s very straightforward: We bring together investors and SMEs (small and medium enterprises). Crowdlending will provide a steadier and safer return than say, investing in stocks or investment funds,” said Alrajhi, who serves as co-founder and chief executive.
“If you compare it to real estate, for example, you need a lot of cash upfront to invest in property, but with P2P (peer-to-peer) lending it provides almost everyone with the opportunity to invest and get a return.”
Having received a special license in July 2019, Forus will launch its platform in early 2020. For investors, it is quick and easy to register: You just need to complete a standard know-your-customer (KYC) process, and you will then be able to lend SR500 ($133) to SR10,000 to whichever companies you choose.
For would-be borrowers, Forus will undertake a credit and risk analysis that usually takes about 10 days.
“We do all the due diligence, and once companies meet our benchmarks, they’re listed on the platform, giving investors — individual and institutional — the opportunity to lend them money,” said Alrajhi. “We call it income investments — investors get their money back, plus fees.”
Companies listed on the online platform are rated according to risk — the bigger the risk, the larger the return for lenders. Companies can borrow up to a maximum of SR2 million.
“Investors can look at the companies’ financial reports, their strategy, their team, their products, as well as specific financial ratios that will help them make their decision,” said Alrajhi.
A company will request to borrow a certain amount, and once this is fully pledged by investors, it will receive the loan. Forus, in turn, earns a small commission. Loans are for six to 48 months.
“Our marketplace is providing investors with diversified alternative options (for) investing, while businesses are empowered with an opportunity to grow and scale,” said Alrajhi.
“We achieve this by minimizing friction, streamlining the customer experience and providing a seamless, secure and transparent platform.”
Alrajhi holds an MBA from Madrid’s IE Business School, where her research led her to spot a gap in the market for a fintech-based, P2P lender in Saudi Arabia.
“If you look at the market today, there’s only a few banks who are willing to lend to SMEs, which banks see as quite high risk,” said Alrajhi. “In Saudi, there are roughly 16,000 SMEs looking for loans.”
Forus uses a murabaha — cost plus financing — structure for its loans, which are not interest-bearing and so are Shariah-compliant.
In English, Shariah-compliant lending will refer to a profit rate rather than an interest rate, although in Arabic there is no such linguistic distinction.
Nevertheless, Forus’s loans are Islamic. “In Saudi, the biggest market is for Shariah-compliant financial services,” said Alrajhi.
She hopes her platform will provide a win-win for investors and SMEs — investors can earn a bigger return on their money, while SMEs can obtain the funds needed to expand their operations and increase profits.
In the longer term, Forus plans to expand to Egypt and Pakistan, but for now Alrajhi’s focus is firmly on her native Saudi Arabia.
“One of the main impacts we aim to have is transparency, which will then enable financial inclusion and help increase GDP (gross domestic product),” she said.
“We’ve talked to so many SMEs, and we found that almost all are facing challenges when it comes to borrowing.”
She leads a team of 10 staff at Forus, and is a female trailblazer in the Kingdom’s male-dominated financial services sector and more broadly in Saudi Arabia, where women constitute less than 25 percent of the workforce.
“Within the next five years, Saudi’s financial sector will look completely different,” said Alrajhi.


This report is being published by Arab News as a partner of the Middle East Exchange, which was launched by the Mohammed bin Rashid Al Maktoum Global Initiatives and the Bill and Melinda Gates Foundation to reflect the vision of the UAE prime minister and ruler of Dubai to explore the possibility of changing the status of the Arab region.