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IMF Study Finds Corrupt Countries Use More Crypto, Argues for Crackdown







Countries with more corruption tend to have more people using cryptocurrencies.

So said a recent International Monetary Fund (IMF) study that surveyed thousands of people in 55 countries. When those countries also have strong capital controls that make it harder to transfer money abroad quietly, there are even more crypto users.

As a result, the alliterative authors of “Crypto, Corruption, and Capital Controls: Cross-Country Correlations” conclude that crypto-assets are likely used to move ill-gotten gains abroad.

That finding, they said, adds to the case for stronger, international regulation of cryptocurrencies — particularly the know your customer (KYC) regulations that require the identification of crypto exchange customers, rather than the more laissez faire approach that characterizes a portion of the crypto industry.

The issue has been in the news a fair bit lately, as regulators and elected officials argue that Russian oligarchs that support President Vladimir Putin’s invasion of Ukraine may turn to crypto.

Pointing to a warning from the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) that oligarchs “may attempt to use crypto and anonymizing tools to evade U.S. sanctions and protect their assets around the globe,” Sen. Elizabeth Warren (D-Mass.), a frequent crypto critic, announced legislation to do just that at a March 17 Senate Banking Committee hearing.

While she got a lot of pushback from a variety of experts who said it was neither practical nor, in many cases, possible to hide the billion-dollar sums they’d be moving, Warren’s core point is one that was a big topic of debate before the Russia-Ukraine war.

Read more: PYMNTS Crypto Crime Series: When Privacy Counts, Crypto Users Turn to Mixing Services

That said, in highly corrupt countries, it is often not just the superwealthy, but those with mid-level power, who collect bribes, misdirect funds and cheat on taxes. Sums in the sub-million-dollar range are also much easier to obscure.

Nonetheless, as the senator’s critics pointed out, highly corrupt countries with strong capital controls — those with criminal in power and strict regulatory control — are almost by definition more oppressive.

See also: Use in Ukraine Lends Some Luster to Crypto’s Dark Side in Senate Hearing

In pushing back against the Ukrainian government’s requests that exchanges ban all Russian clients, not just those under sanction, Coinbase CEO Brian Armstrong refused, saying on Twitter that “ordinary Russians are using crypto as a lifeline now that their currency has collapsed. Many of them likely oppose what their country is doing, and a ban would hurt them, too.”

Pushing Back at Pushback

What sets the IMF researchers’ work apart is that they attempted to account for other factors that could influence outcomes. Among these was “whether crypto-assets are more likely to gain traction in countries where the local currency has historically not been a secure store of value.”

That’s long been a rallying point for opponents of tougher crypto regulation. They often point to Venezuela, where bitcoin has gained popularity as hyperinflation made the bolivar so worthless that bundles of banknotes have been dumped by the roadside.

Another factor was the growing success authorities are having in tracking bitcoin transactions back to their supposedly pseudonymous senders and recipients.

Aside from that fact that such investigations are labor-intensive and generally require a mistake to exploit, the authors pointed out that while cash provides “full anonymity and large denomination bills have long been considered an aid for crime and tax evasion, crypto-assets in their current form make it possible to move even larger amounts speedily and with greater ease, including across national borders.”




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