The booming business at cryptocurrency kiosks, where digital currencies are exchanged for cash, is increasingly tied to criminal activity, according to a government watchdog that is recommending federal regulators keep closer tabs on their locations.
The Government Accountability Office, which issued a report about cryptocurrency kiosks to lawmakers and federal agencies in September, made its findings public Monday after omitting certain investigative details about the trafficking of human beings and drugs. The watchdog agency called for tighter regulations in the sprawling cryptocurrency market, which is estimated to be worth more than $2.2 trillion.
Specifically, the GAO recommended that the Internal Revenue Service and the Treasury Department’s Financial Crimes Enforcement Network require crypto ATM operators to submit the physical locations of their kiosks.
“Reviewing registration reporting requirements and taking appropriate action, as needed, to better identify individual kiosk locations by operator could help FinCEN and IRS identify high-risk kiosk operators to monitor for compliance, while also improving information law enforcement has available to identify potentially illicit transactions,” the GAO said in its report.
“Indeed, several law enforcement agencies we spoke with reported that kiosk location data, particularly when linked to operators of those locations, can improve the information that law enforcement has available to identify the source of illicit transactions,” the authors wrote.
The GAO expressed concern that the machines provide a doorway for criminals to withdraw funds from the largely anonymous markets for Bitcoin and other digital currencies.
The number of suspicious activity reports involving cryptocurrencies and drug trafficking filed with FinCEN increased from 252 in 2017 to nearly 1,500 in 2020, according to the report. But because of some shortcomings in monitoring, law enforcement agencies “may lack complete data” about the use of crypto ATMs in human and drug trafficking schemes, the authors wrote.
A rise in risky activity could further spook some banks that are already hesitant about fully embracing the lucrative cryptocurrency market. An estimated 35,000 individual crypto ATMs are operating in the U.S., the Wisconsin Bankers Association said in a
Crypto kiosk operators are required to register with FinCEN and the IRS, but the number of known machines has barely outnumbered estimates of those operating in the dark.
There were 164 registered kiosk operators in the U.S. in 2020, almost double the number in 2018, according to the GAO. Yet the number of known unregistered operators also increased from 104 in 2018 to 133 two years later.
A single kiosk operator can own more than 1,000 machines, according to the GAO report.
The GAO did not publish comments from the various agencies that received the report, but both the Treasury and IRS concurred with the report’s findings.
A spokesperson for the Blockchain Association, a trade group, declined to comment on the report.
One of the largest crypto ATM operators, Bitcoin Depot, did not immediately respond to a request for comment.
