Sweden Classifies Crypto Exchanges as Professional Money Launderers

The Swedish Police Authority and Financial Intelligence Unit (FIU) have officially classified cryptocurrency exchanges as “professional money launderers” (PMLs) after a thorough analysis of the services offered by unlicensed and illegal operators. This designation stems from concerns about the connections these exchanges have with criminal activities and their roles in enabling various individuals and criminal networks to systematically launder money.

Categorisation of Professional Money Launderers

The FIU has categorised PMLs into four distinct profiles based on their analysis:

1. Node Exchange Providers: These exchanges act as intermediaries, facilitating transactions without proper licensing.
2. Hawala Exchange Providers: These platforms use traditional informal money transfer methods that bypass regulatory scrutiny.
3. Asset Exchange Providers: These exchanges focus on trading various assets, often without transparency or regulatory oversight.
4. Platform Exchange Providers: These provide a platform for trading cryptocurrencies but may operate outside legal frameworks.

Four profiles of professional money launderers or illegal cryptocurrency exchanges by FIU Sweden. Source: Swedish Police Authority

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Sweden Calls for Enhanced Law Enforcement on Crypto Platforms to Combat Money Laundering

The report emphasised the need for increased law enforcement involvement on cryptocurrency trading platforms to mitigate illegal activities. The FIU stated:

“FIU Sweden assesses illicit cryptocurrency providers as an emerging threat within money laundering schemes and a crucial part for organized crime to maintain and expand their criminal markets.”

However, the authorities also recognised the positive role played by licensed and legitimate crypto trading platforms in combating money laundering. They urged these entities to monitor for suspicious trading patterns among users and take appropriate actions, such as halting transactions and offboarding clients when necessary.

Sweden’s recent efforts to clamp down on illegal cryptocurrency activities have extended to the Bitcoin mining community within the country. The Swedish Tax Agency (Skatteverket) has been scrutinising the operations of 21 crypto-mining firms from 2020 to 2023, uncovering several discrepancies in their tax filings.

A breakdown of unpaid tax obligations for crypto mining firms between 2020 and 2023. Source: Swedish Tax Agency

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Sweden Intensifies Tax Scrutiny on Crypto Mining Firms Amidst VAT Evasion Concerns

The investigation revealed that 18 of the crypto-mining firms had submitted “misleading or incomplete” information to evade value-added tax (VAT) on taxable operations. The agency noted:

“The described approach leads to tax disappearing from the country in the form of incorrect payments of input VAT, unpaid output VAT, and unreported crypto assets.”

In response to a $90 million tax demand, the affected crypto mining firms filed appeals with the administrative court. Of these, two firms had their appeals accepted, leading the court to adjust the amounts owed based on its verdicts.

Overall, Sweden's rigorous approach highlights the growing concern over the intersection of cryptocurrency and organised crime, aiming to strengthen regulatory oversight while promoting compliance among legitimate operators in the sector.