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How criminals are using up-and-coming crypto ATMs to commit fraud

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CNBC’s Eamon Javers reports on how criminals are using cryptocurrency ATMs for fraudulent activity, and how operators are trying to fight back. For access to live and exclusive video from CNBC subscribe to CNBC PRO: https://cnb.cx/2NGeIvi

Criminals are cashing in on bitcoin ATMs around the country, using the convenient, largely anonymous transactions for drug trafficking, money laundering and a variety of fraud, law enforcement officials say.

The machines, mostly located in convenience stores and owned by private companies, allow customers to easily buy bitcoin and other cryptocurrencies using cash. The funds are then sent to that customer’s crypto wallet.

But that convenience also means easy money for fraudsters.

The fraud, according to law enforcement, has become more pervasive as bitcoin ATM installations in the U.S. have skyrocketed in recent years. More than 26,000 machines stand today, a spike from 4,212 in January 2020, according to Coin ATM Radar. Well-known companies such as Walmart and Circle K have started installing them.

The FBI warned last week of fraud schemes using cryptocurrency ATMs and quick response, or QR, codes to facilitate payments.

“The FBI has seen an increase in scammers directing victims to use physical cryptocurrency ATMs and digital QR codes to complete payment transactions,” the bureau said in a public service announcement. QR codes can be used at the crypto ATMs to direct payments to intended recipients.

Here’s how this particular fraud works, according to the FBI: “The scammers provide a QR code associated with the scammer’s cryptocurrency wallet for the victim to use during the transaction. The scammer then directs the victim to a physical cryptocurrency ATM to insert their money, purchase cryptocurrency, and use the provided QR code to auto-populate the recipient address.”

One state has recently targeted the lack of oversight of the machines.

“There are scams, there’s fraud,” said Lisa Cialino, counsel for the New Jersey State Commission of Investigation. “The most alarming thing is that there are owners and operators of these machines that truly know nothing about what they should be doing under the Bank Secrecy Act.”

Bitcoin ATM operators are required to register with the U.S. Treasury Department’s Financial Crimes Enforcement Network. However, an investigation by the New Jersey commission released earlier this year found actual regulation was lax, which is similar to many states.

“Many machines permit near anonymity on purchases of up to $900 worth of cryptocurrency by allowing users to provide only a cellphone number,” the commission’s report said. “Some require no identifying information at all.”

That’s alarming to law enforcement officials, who told CNBC that the ATMs are being used for a wide range of criminal activity. Drug traffickers, money launderers and people trying to get unwitting victims to send money to a crypto wallet have employed the machines. A 2020 DEA report warned the ATMs can “aid in the movement of illicit bulk currency.”

Criminals appear to have an easy time exploiting the ATMs, Cialino told CNBC.

“It seems like it’s very simple because a lot of these machines aren’t collecting information on the person doing the transaction,” she said.

The New Jersey commission’s report found more than $70 million deposited for cryptocurrency purchases in the state between 2015 and 2020.

Marc Grens, president of Chicago-based bitcoin ATM operator DigitalMint, said the report’s findings mirror what his company discovered when it investigated where some crypto transactions ended up.

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