Back in September 2024, we wrote an article entitled “Illegal crypto ATMs: not as uncommon as you’d think”, which noted that the Financial Conduct Authority (“FCA”) had brought the first criminal charges against an individual for alleged offences of running multiple crypto ATMs without FCA registration.
We noted how this marked 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.
Update: four-year sentence
It has now been reported that a court has sentenced the operator of the crypto ATM network to four years in prison.
This was imposed in relation to criminal charges of running multiple crypto ATMs without FCA registration, as well as forgery using false documents and possession of criminal property.
This is the first sentence by a UK Court for unregistered cryptoasset activity in the UK, which demonstrates that the relevant authorities and UK Courts are going to take a hardline approach in these types of cases.
What is a crypto ATM?
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, arms deals). These ATMs, when not properly regulated, can be exploited by criminals due to their ease of use.
Illegal crypto ATMs represent a major risk to consumers because of 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 crackdown 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?
- 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 reporting requirements. This anonymity enables criminals to “clean” money by moving it into the digital realm, where it’s harder to trace.
- 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.
- 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.
- 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.
- 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.
- 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?
- 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.
- 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.
- 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?
- 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.
- 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.
- Public awareness: Raising public awareness of the dangers of illegal crypto ATMs can help reduce their usage. Many people may not understand that using these machines could unknowingly involve them in criminal activities.
Criminal investigations and litigation
Gherson’s solicitors criminal litigation, regulatory and investigatory team combine an expert knowledge of criminal and regulatory law underpinned with a firm understanding of digital assets and blockchain technology. As such, the team are able to provide expert strategic advice to anyone wanting to investigate and pursue a potential theft of crypto assets.
The team are also able to provide advice to anyone facing investigation in relation to any allegation of criminality involving cryptoassets.
Regulation and compliance
In these constantly changing times, firms that deal with cryptoassets, and additionally have exposure to firms that do, 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 white-collar crime and regulatory team are able to provide advice and assistance with AML and sanctions compliance, including in situations involving cryptoassets.
Additionally, the team have recently started a series on the regulation of crypto, with the aim of advising those who work in the compliance of this sector. In addition, for those who would like advice on 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.
Updated: 04 March 2025
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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