The federal government’s move to invoke the Emergencies Act marks an attempt to cut off funds directed to the “Freedom Convoy,” including new cryptocurrency channels.
But experts say fundraising through the decentralized digital assets can be difficult to pin down and worry that attempts to crack down on crypto could have long-lasting ramifications on fintech innovation.
Convoyers, who have set up camp for 20 days in Ottawa and established satellite protests at border crossings across Canada, have turned to cryptocurrency after crowdfunding platforms such as GoFundMe shut off their access to funds after the demonstrations were deemed “illegal” by government and police.
Benjamin Dichter, one of the principal organizers of the so-called “Freedom Convoy,” said in a Facebook livestream last week that as GoFundMe began to withhold funds from their cause, he floated the idea on Twitter of using Bitcoin “as an alternative,” citing its decentralized nature as fitting for the convoy’s anti-mandate ethos.
He said he was “shocked how quickly” he started receiving messages from Bitcoin enthusiasts keen to set up fundraising platforms using the digital currency.
Dichter estimated that more than US$800,000 had been raised in Bitcoin at the time of speaking, with other convoy-related accounts putting estimates even higher.
Details of the federal government’s Emergencies Act released last Tuesday night show that crowdfunding and cryptocurrency platforms, in addition to traditional banking institutions, are included in the federal government’s crackdown on companies providing financial services to individuals believed to be furthering “illegal blockades.”
While the act empowers banks to freeze or suspend accounts believed to be linked to the blockades without a court order, the matter of taking Bitcoin or some other cryptocurrency is infinitely more complex, given its decentralized nature.
Alex Tapscott, a blockchain expert who’s written about the emerging technology’s impact on business and society, notes digital currencies are exchanged in a “peer-to-peer” model, as opposed to having a singular authority like a bank or other regulator facilitating those transactions.
Crypto is a bit like email in that way, he explains, in that anyone with an account can make a transfer to anyone else.
“So long as you have an email address, you can send an email freely to someone. And the same is true for Bitcoin and other digital assets,” he says.
“The protesters have had some trouble with crowdfunding platforms and with banks, and so they’ve turned to bitcoin as a peer-to-peer technology to raise funds.”
Crypto the ‘new challenge’ in money laundering
The lack of a centralized authority to seize any funds allegedly used for illegal activity has made crypto the “new challenge” across the world, according to Matt McGuire, a forensic accountant who’s followed the rise of cryptocurrency in global money laundering operations.
“It’s complex because there are many tools out there specifically designed to evade detection,” he says of the crypto space.
But there have been notable seizures of digital currency assets in recent years. The largest such seizure of laundered money in the United States, worth roughly US$3.6 billion in Bitcoin at the time, was cracked when the funds were converted into Walmart gift cards, tipping off investigators to go after those registered to the cards.
Situations like this point to a key vulnerability in crypto today: because digital currency isn’t yet used widely to pay for goods and services, it isn’t very “liquid,” McGuire explains, and has to be made into a useable currency at a cryptocurrency exchange or other conversion point before it can be deployed.
These “on and off ramps,” as McGuire calls them, are effective interception points where the Emergencies Act could come into play to route crypto-based funds away from the convoyers.
Charlene Cieslik, chief compliance officer at Toronto-based Bitcoin ATM company Localcoin, agrees with McGuire’s assessment.
“That’s I think where the rubber hits the road, is that you still have to trade these assets in for fiat currency to be able to use it, spend it, support the trucker cause at hand. And that’s where the measures will be impacted because the banks have been given this guidance,” she says.
Crypto exchanges have already reportedly been targeted as facilitators of digital currency transactions.
The Globe and Mail reported Wednesday that the RCMP was reaching out to operators demanding they cease processing transactions for a number of specific crypto wallets.
At least one exchange operator, Toronto-based Coinberry, confirmed the report to Global News on Wednesday.
“Coinberry has received communications that appear to embody a request of this nature. At this time we are evaluating our options and the basis with which this request has been made” said CEO Andrei Poliakov in an email.
“Coinberry will continue to prioritize our users right to privacy and will make every effort to protect our users from any form of overreach or unlawful action which may infringe on their rights.”
NFTs another hurdle
Even as the government equips financial institutions with more powers to tackle money laundering, the emerging world of non-fungible tokens (NFTs) offers yet another route to skirt such regulation.
NFTs are another digital asset verified using blockchain that’s become popular as a form of collectible or art piece.
NFTs have popped up in connection with the “Freedom Convoy” as well, in what McGuire says is a strategy reminiscent of classic money laundering tactics through art dealing.
“It’s actually a really fun merger of the old world and new world of money laundering,” he says.
Because the value of art is largely subjective, prices on some pieces can be trumped up to cover the laundering of illicit money as a legitimate transaction between buyer and seller.
The same can be done today with cryptocurrency to purchase NFTs sponsored by the convoy, as an alternative fundraising mechanism that’s masked as the sale of a token.
“Think of it like an eBay for trading digital art so that when you sell art and you get money for it, it doesn’t qualify under … the definition of what a crowdfunding platform is or a payment service provider is, it’s a different thing altogether,” says Cieslik, who adds that the emergency orders may require additional wording to cover off funds raised in this way.
She notes, however, that NFTs also require the same “on and off ramps” before the funds become useful for those seeking to recoup the proceeds.
“Whether it’s cryptocurrency in general or NFT specifically, when you raise funds on a platform, ultimately you have to cash them out.”
Concerns about overreach
Though the temporary measures under the Emergencies Act are set to expire after 30 days, some in the cryptocurrency space are worried that hiked up regulations are here to stay.
Tapscott worries that the emergency declaration is too reactive a mechanism to shape a lasting framework for how the Canadian government regulates cryptocurrency, which he believes is “foundational to the next era of economic progress.”
“While I agree with the idea that regulations are important, I think they need to be created and they need to be debated in a thoughtful and deliberate manner. And that’s clearly not what’s happening right now,” he says, adding that getting this question wrong could have lasting implications for Canada’s digital economy.
Tapscott says that even though Canadians might not like how digital currencies are being used to further the “Freedom Convoy” movement, crypto is a “non-ideological” and “non-partisan” technology that’s used by actors from all sides of the political spectrum, including dissidents fighting government crackdowns in Belarus.
“What I’ve often tried to fight against is the demonization of cryptocurrency above and beyond anything else,” adds Cieslik.
“The fact that the trucker convoy has made this move to use cryptocurrency shouldn’t be used to demonize the entire industry because that’s not what everyone is about,” she says. “And I don’t like the idea of cryptocurrency being painted with one big, broad brush.”