Illegal crypto ATMs: not as uncommon as you’d think

The FCA has brought the first criminal charges against an individual for alleged offences of running multiple crypto ATMs without FCA registration.

This marks the first attempted FCA prosecution against an individual relating to unregistered cryptoasset activity under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.

The FCA has charged the individual with running multiple crypto ATMs without FCA registration.

A crypto ATM is an ATM, where crypto can be exchanged for cash and vice versa. Illegal cryptocurrency ATMs pose significant dangers and risks to society, largely due to their potential use in facilitating criminal activities, such as money laundering, tax evasion and financing illicit trades (e.g. drug trafficking and arms deals). These ATMs, when not properly regulated, can be exploited by criminals because of the anonymity and ease of use they provide.

Illegal crypto ATMs represent a major risk to consumers due to the anonymity they provide, enabling a range of illicit activities. Stronger regulations, enforcement and international cooperation are crucial in addressing the issue. Until law enforcement finds a way to crack-down on these illicit operators, we may see more and more people hand over their hard-earned cash to crypto scammers.

FAQs on cryptocurrency and illegal ATMs

1. What are the key dangers of illegal crypto ATMs?
   1. Money Laundering: One of the biggest dangers of illegal crypto ATMs is their use in money laundering. These machines allow individuals to convert large sums of fiat currency (like cash) into cryptocurrency without undergoing proper identity checks or complying with reporting requirements. This anonymity enables criminals to “clean” money by moving it into the digital realm, where it is harder to trace.
   1. Circumventing Know Your Customer (KYC) and Anti-Money Laundering (AML) Regulations: Legal cryptocurrency ATMs are required to adhere to KYC and AML regulations, meaning users must provide identification, and suspicious transactions are reported to authorities. Illegal ATMs, however, bypass these rules, allowing users to transact in large volumes without being identified or tracked, facilitating crime.
   1. Financing Illicit Activities: Similar to money laundering, illegal crypto ATMs can be used to fund illegal activities, such as drug and arms trafficking, human trafficking and terrorism. Since cryptocurrencies can be moved globally with minimal oversight, these machines are a convenient way for criminals to obtain digital currency to finance such activities.
   1. Tax Evasion: Illegal crypto ATMs can be used to avoid taxes. Users can convert cash into cryptocurrency without reporting these transactions to tax authorities, making it harder for governments to track income and collect taxes on transactions. This undermines tax compliance and can lead to substantial revenue losses for government.
   1. Dark Web Transactions: Cryptocurrencies are often used on dark web markets to buy and sell illegal goods and services, such as drugs, stolen data and firearms. Illegal crypto ATMs allow users to convert cash into cryptocurrency, making it easier to engage in such transactions without being traced. The dark web thrives on these anonymous, unregulated transactions.
   1. Risk to National Security: In extreme cases, illegal crypto ATMs could be exploited by terrorist organisations or hostile actors to move funds across borders without detection. This is particularly concerning for nations, where regulatory controls over the cryptocurrency industry are weak or inconsistent.
2. What are the challenges for law enforcement and regulators in relation to crypto ATMs?
   1.  Lack of Registration: Legal crypto ATMs are usually registered with government authorities and comply with local financial regulations. Illegal machines, on the other hand, operate without proper registration, which allows them to avoid scrutiny from law enforcement and regulators.
   1. Non-compliant with KYC/AML: Illegal ATMs do not require users to provide identification, meaning users can deposit or withdraw cryptocurrency anonymously. This makes it nearly impossible for authorities to monitor the source of the funds or track illegal activities tied to the transactions.
   1. Cash Transactions: These machines often allow for large cash transactions without raising red flags. People can deposit large sums of cash and receive cryptocurrency instantly, which can then be moved across borders or used in illicit trades with little to no oversight.
3. What are the solutions to combat illegal crypto ATMs?
   1. Stricter Regulations: Governments are increasingly developing stricter regulations for the cryptocurrency industry, including requiring crypto ATM operators to register with financial authorities and comply with KYC/AML laws.
   1. Enhanced Enforcement: Law enforcement agencies are using blockchain analytics tools to trace suspicious cryptocurrency transactions back to their origin, helping identify potential illegal ATMs and the people using them.
   1. Public Awareness: Raising public awareness of the dangers of illegal crypto ATMs can help reduce their usage. Many people may not understand that by using these machines they could unknowingly get involved in criminal activities.

Criminal investigations and litigation

Gherson Solicitors criminal litigation, regulatory and investigatory team combine an expert knowledge of criminal and regulatory law underpinned by a firm understanding of digital assets and blockchain technology. As such, the team is able to provide expert strategic advice to anyone wanting to investigate and pursue a potential theft of crypto assets.

The team is also able to provide tailored advice to anyone facing investigation on allegations of criminality involving cryptoassets.

Regulation and compliance

In these constantly changing times, firms that either deal with cryptoassets themselves or have exposure to firms operating this type of an asset, will need to carefully consider all their systems and controls to ensure that they are able to comply with all relevant AML and sanctions regulations. Gherson’s criminal litigation, regulatory and investigatory team is able to provide advice and assistance with AML and sanctions compliance, including in situations involving cryptoassets. 

Additionally, the team has recently started a series of blogs on the regulation of crypto, with the aim of advising those who work in the compliance of this sector. For those who would like advice on the relevant issues, including those who have had issues with the FCA registration process, our specialist regulatory and compliance team can guide individuals and companies through the process.

Please do not hesitate to contact us for further advice, send us an e-mail, or alternatively, follow us on X or LinkedIn to stay up-to-date.

The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Gherson accepts no responsibility for loss which may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please do not hesitate to contact Gherson. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Gherson.

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