Traditional Financial system VS Crypto: Truths about illicit funds

According to a report by stock exchange company Nasdaq, $3,100 billion in illicit funds passed through the traditional financial system in 2023. Accused of being tools for criminals, cryptocurrencies are not mentioned in the report..

Global financial crime and the role of the traditional financial system

The main financing channel for global crime remains the traditional financial system. This, at any rate, is what the Nasdaq Stock Exchange asserts in its “Global Financial Crime Report”, a report highlighting the scale of global financial crime over the past year.

In its report, Nasdaq estimates that $3,100 billion of illicit funds flowed through the traditional financial system in 2023. According to the exchange’s estimates, $782.9 billion was used for drug trafficking. Losses linked to bank fraud and swindles are also estimated at $485.6 billion. Human trafficking and financing accounted for $346.7 billion and $11.5 billion respectively.

Traditional Financial system, système financier tradtionnel
Volume of illicit financial transactions through the traditional global financial system in 2023

Interestingly, the Nasquaq report makes no mention of Bitcoin, crypto or stablecoins. In the public opinion, however, these are the digital assets that are considered to be instruments of fraud.

Demystifying accusations of dirty money on cryptocurrencies

The scale of financial crime across the traditional financial system is alarming. Yet some players refuse to face up to this reality. Accusations portraying cryptocurrencies as tools of crime are frequent. The UN, the BCE or the Nobel Prize winner Paul Krugman… several players often present cryptocurrencies as ways to launder money and finance terrorism. Yet the facts say otherwise.

According to a recent study by Chainalysisillegal funds transiting through crypto in 2023 are estimated at $24.2 billion. This amount represents just 0.34% of the total volume of crypto transactions in 2023. Compare this to the $3.1 trillion in illicit funding passed through the traditional financial system, and it’s clear just how wide the gap is. The share of illegal funds passing through crypto accounts for just 0.7% of illegal flows via the traditional financial system.

In Ireland, criminals prefer using banks and financial institutions instead of crypto. Nasdaq’s report reminds us that this is not just an Irish reality but a global trend. The global financial regulators’ fight against financial crime needs to be better focused. The focus should be on traditional banks and financial institutions. Thanks to the transparency and traceability of blockchain, crypto has intrinsic strengths in the fight against crime such as traceability.