Experts are divided over whether Gibraltar embracing cryptocurrency is based on the country's intent to amass wealth
When you hear the words Gibraltar, what words spring to mind? For many readers, two words: Tax Haven.
With a population of 33,000 people, Gibraltar, a British Overseas Territory situated on Spain's south coast, is known as one of the world’s leading tax-havens. According to Taxhavens.biz, the Wikipedia of tax-related information, “Gibraltar is also known to provide offshore services such as the incorporation of offshore companies, offshore banking, insurance and investment fund management among other services. The economy of Gibraltar depends heavily on its offshore financial sector.”
However, things appear to be changing, and fast. The leopard is desperately trying to change its spots.
Last year, after striking an agreement with the United Kingdom on tax cooperation, Spain removed Gibraltar from its list of tax havens. The government of Gibraltar appears to be doing everything in its power to rehabilitate the country’s rather shady reputation.
Why, then, is Gibraltar about to become Europe’s preeminent cryptocurrency hub?
In the final week of December, as The Guardian reported, the government will soon allow conventional bonds to “be traded alongside major cryptocurrencies such as bitcoin and dogecoin.” Yes, dogecoin, the world’s first “meme coin,” something that was, to quote its creators, meant to be a “joke.” However, the link between crypto and money laundering is no joke. As cryptocurrencies offer a great deal of anonymity, they have become synonymous with money laundering. Today, with the likes of bitcoin and its 10,000 brethren, it has never been easier to send illegal funds anywhere in the world.
So, Gibraltar, a place known (or once known) for offering tax dodgers a home may soon offer a home to crypto-savvy money launderers. Is this an accurate assumption, or a gross overgeneralization? TRT World reached out to Nathan C. Goldman, a professor of accounting at North Carolina State University and an expert in money laundering, for comment on the matter.
According to Goldman, cryptocurrencies “facilitate money laundering by providing a platform for private transactions to take place without the knowledge of the government and/or taxing authorities.”
The parties “accomplish this by first purchasing a cryptocurrency using the illicit funds. The exchanges often have varying and changing regulatory requirements so they can move from exchange to exchange while still allowing these purchases to occur. The parties also often purchase a lesser-known cryptocurrency that may have less oversight and visibility to the authorities. Next, the cryptocurrency that was bought using illicit funds is used to purchase other cryptocurrency. This helps conceal the paper trail, allows the illicit funds to be converted into more well-known cryptocurrency, and enhances the ability for the funds to be moved to different countries.”
Finally, added Goldman, “using these cleaner cryptocurrencies, the parties can then use over the counter brokers to act as an intermediary to sell the cryptocurrency, thereby allowing these funds to be cleaned/laundered.”
Crypto for criminals is hyperbole
Then, why would Gibraltar, a country desperately trying to rehabilitate its image, look to become a crypto hub? Some perspective is needed. Goldman stressed the following: “It is worth highlighting that cryptocurrency as a whole is not used for money laundering and that most people who buy and sell cryptocurrency are not money laundering."
"However, the concern has been rising in recent years as more parties have been involved in cryptocurrency, the price has skyrocketed, and more parties are accepting cryptocurrency for payment (i.e., gambling websites, Tesla, etc.). These items have led governments like the US to introduce more stringent tracking and reporting rules for cryptocurrency.”
Carol Goforth, a leading expert on the regulation of crypto assets, appears to support Gibraltar’s move. “I think the rhetoric about 'crypto is for criminals' is overblown,” she told TRT World.
After all, she added, “a relatively small (and according to the analytics provided by Chainalysis declining) percent of crypto transactions being linked to any criminal activity. In addition, historically, Gibraltar has a record of compliance with FATF AML requirements, and as of its most recent assessment (which was in 2019) had no record of any terrorist funding, whether through electronic money or otherwise. And while I am not an expert in the law of Gibraltar, I believe that a firm using distributed ledger technology is considered a relevant financial business with KYC (know your customer) and AML requirements in place, in compliance with EU directives on the subject.”
In the aforementioned Guardian piece, Albert Isola, Gibraltar’s minister for digital, financial services and public utilities, told readers that Gibraltar may have been “a tax haven 20 years ago,” however, in the years since, “the territory has now overhauled its tax and information sharing policies.”
The introduction of crypto regulation, we’re told, “is having a similar effect: rooting out bad actors and providing assurance to investors.” For bad actors, Isola had some bad news: “If you wanted to do naughty things in crypto, you wouldn’t be in Gibraltar, because the firms are licensed and regulated, and they aren’t anywhere else in the world.”
However, just because a firm is licensed and regulated, criminals can still launder money. “Of course,” said Goforth, “there are no guarantees in the world, but the trading in Gibraltar is regulated and subject to oversight.”
How will this affect criminals' ability to, shall we say, make a living? Goforth responded: “Criminals are more likely to see transactions that do not go through intermediaries that are obligated to collect identifying information, maintain records, and share reports. The fact that Gibraltar is offering a regulated environment will make it harder for criminals to utilise crypto rather than facilitating either traditional money laundering or the funding of illicit activity.” In her opinion, “Isola is correct,” naughty people should look elsewhere.
According to Dr Goldman, "licensing and regulations do not completely stop firms from doing illicit activities. However, it likely mitigates those activities. Money laundering is not unique to Gibraltar, and it’s possible that even after reform, it is still taking place at higher levels than in many other countries. However, it should be noted that the activities in Gibraltar have likely declined since their reforms went into effect.”
So, it seems, contrary to popular belief (and objective reality), a leopard can change its spots. A country once synonymous with shady business practises is changing its image. The government of Gibraltar appears to be embracing cryptocurrencies in the hope of preventing, rather than enabling, criminal behaviour.