Crypto ATMs are major hubs for scams, with illicit activities linked to them being double the rate of overall crypto-related crimes.
The Federal Trade Commission (FTC) has identified Bitcoin ATMs as a significant method used by fraudsters, with scam cases increasing by a staggering 1,000% since 2020.
According to the FTC, over $110 million has been lost to Bitcoin ATM-related scams since 2020, with more than $65 million lost in the first half of 2024 alone.
Source: FTC
TRM recently released a report on crypto ATMs that aligns with the FTC’s findings. The report reveals that since 2019, these ATMs have facilitated over $160 million in illicit transactions, with nearly 79% of all illicit cash-to-crypto activity in 2023 being directed to known scam and fraud addresses.
Crypto ATMs scams impact people across various age groups, with the median loss reported at $10,000, and older adults, particularly those over 60, being especially vulnerable to them.
In an unprecedented class action, an ex-state attorney general sued Athena Bitcoin Inc. and Genesis Coin Inc. in n. The lawsuit was filed in a state court in Ohio after his elderly client was scammed into depositing tens of thousands of dollars into one of the defendant’s ATMs, which convert physical currency into cryptocurrency.
In an unprecedented class action, a former state attorney general has filed a lawsuit against Athena Bitcoin Inc. and Genesis Coin Inc. in Ohio, following an incident where his elderly client was deceived into depositing tens of thousands of dollars into one of the defendants’ ATMs.
The rise of criminal activity linked to crypto ATMs is likely to accelerate, as the global expansion of these machines shows no signs of slowing down. On average, a new crypto ATM is installed every two days.
As of November 6th, 2024, there are over 38,420 crypto ATMs in operation worldwide. The United States and Canada dominate the market, accounting for approximately 89.4% of the global Bitcoin ATM network, while Australia has seen a rapid increase in its own installations in recent months.
Source: Coin ATM Radar
This article examines the different forms of fraud tied to crypto ATMs and their growing role in enabling money laundering for criminal cartels.
Crypto ATMs allows users to easily convert their fiat currency into cryptocurrency or vice versa. They offer a convenient, accessible gateway for users to easily access crypto and even make their first step into the crypto ecosystem.
But it quicly attracted the attention of a large range of criminal actors, who exploit crypto ATMs for illicit activities ranging from money laundering to fraud.
What Are Crypto ATMs?
Crypto ATMs are physical kiosks that allow users to buy and, in some cases, sell cryptocurrency using cash or debit/credit cards.
They look similar to traditional ATMs but serve a different purpose: facilitating the exchange of digital currencies like Bitcoin, Ethereum, and other altcoins.
Most of crypto ATMS are in fact Bitcoin ATMs, the first crypto ATMs was a Bitcoin ATMs launched in 2013 in Vancouver.
World’s First Bitcoin ATM in Vancouver — Source: CBC
The companies behind Bitcoin ATMs make a profit by collecting transaction fees. Compared to crypto exchanges, the transaction fees collected by these providers are typically high. For example, when users use Coinstar machines to deposit cash in exchange for Bitcoin, they can pay up to an 11% transaction fee to convert their fiat into Bitcoin. And that’s the low-cost option, as most other providers charge even higher fees.
Some of the key features of Crypto ATMs include:
No need for a bank account as users can transact anonymously in some cases, simply by using cash.They are extremely convenient as transactions can be completed in a matter of minutes, making it an appealing option for those who want to quickly buy or sell crypto.Plus, they have a wide geographical distribution. Crypto ATMS can be found in gas stations, convenience stores, shopping malls, and even airports, increasing their accessibility.
Unfortunately, these same features make Crypto ATMs a prime target for exploitation by criminals.
Crypto ATMs: A Scam Machine
Crypto ATMs have been implicated in various types of fraud, particularly phone scams, romance scams, and fake investment schemes.
Because Crypto ATMs allow for deposited cash to be converted into Bitcoin and then instantly transferred to a digital wallet, quick, silent and efficient, Crypto ATMs they have become a tool of choice for various types of fraud, and scams.
Individual and organized criminals create scenarios in which their victims are forced to use crypto ATMs, so that the victims’ future stolen money, once converted to Bitcoin for example, is directly funneled into the criminals’ wallets.
“Scammers claim that depositing cash into these machines will protect your money or fix the fake problem they’ve concocted.They’ve even called BTMs (Bitcoin ATMs) ‘safety lockers.’ They direct you go to your bank to take out cash. Next, they send you to a nearby BTM location — often a specific one — to deposit the cash you just took out of your bank account.”
The tactics used to entrap their victims are nothing new. Only the stealing method differs.
The most common strategy is government impersonation scams. Fraudsters call or message their victims, posing as government agents (e.g., IRS, Social Security, immigration officials, or even the FTC). More sophisticated scammers will use spoofed number to match whom they impersonate.
To convince their victims of the legitimacy of their claims, fraudsters will often use information about the victim that they initially purchased on the darknet. Believing they are speaking with a legitimate representative on the other end of the line, the victim is then told by the fraudsters that they face jail time if their debt to the impersonated government agency is not immediately paid. Alternatively, the fraudsters may warn that the victim’s bank account has shown suspicious activity, has been involved in a criminal scheme, or is about to be drained.
The victim is urged to act immediately or face life-changing repercussions. They are then sent a QR code to use at a Bitcoin ATM to make the payment.
In this article, we explain in detail the psychological mechanisms that at play and can turn a target into a victim.
A variation of this fraudulent scheme includes fake tech support and business fraud. The victim receives a fraudulent security warning impersonating a reputable company, such as Microsoft or Apple. Alternatively, scammers may pose as utility company representatives, threatening to shut off the victim’s electricity, gaz or other essential services unless immediate payment is made.
Similarly, scammers may impersonate a relative in distress, claiming to need bail money, and direct the victim to a crypto ATM to make an urgent payment.
In romance scams, the fraudster poses as a romantic partner, building an emotional connection with the victim and ultimately convincing them to send money via a crypto ATM.
Scammers also often use the classic tactic of offering “too good to be true” deals on expensive items, like cars, by fabricating fake stories to justify the low price.
Money Laundering Through Crypto ATMs
In traditional financial systems, anti-money laundering (AML) regulations, know-your-customer (KYC) protocols, and transaction monitoring can make it challenging for criminals to launder money.
However, cryptocurrency ATMs, especially those with lax or non-existent KYC procedures, have emerged as a new tool for criminals.
Why It Works:
Anonymous Transactions: While some Crypto ATMs require ID verification for larger transactions, many machines still allow smaller transactions without any form of identification. Criminals can break up large sums of money into smaller transactions to avoid detection.Fiat-to-Crypto and Back: A criminal can deposit illicit cash into a Crypto ATM, receive cryptocurrency, and then transfer that cryptocurrency to another address,often using a “mixer” service to further obscure the trail. Afterward, they can either hold the cryptocurrency or convert it back to fiat via a different Crypto ATM, essentially “cleaning” the money.Cross-Border Transactions: Crypto ATMs make it easy to transfer value across borders without the oversight of financial institutions, which typically scrutinize international money transfers for suspicious activity.
Money laundering through Crypto ATMs also relies on unwilling money mules.
According to a Hodlatm report, money mule scams also exist in the Crypto ATMs ecosystem.
It involves criminals recruiting victims to unknowingly participate in money laundering. In these scams, stolen funds are deposited into the victim’s bank account, and the victim is instructed to withdraw the money and send it to the criminals using a Bitcoin ATM and the criminal’s wallet QR code. Victims are usually tricked through job and romance scams.
In job scams, victims are led to believe they’ve been hired by a company and are asked to deposit funds into a Bitcoin ATM on behalf of their “employer,” with the primary goal being the transfer of stolen money. In romance scams, scammers target victims on dating platforms, building trust over time with personal stories, gifts, and emotional manipulation. Eventually, they ask for money, often citing a personal emergency or the need for funds to visit the victim.
They also rely on unlicensed Crypto ATMs.
These ATMs enable individuals to convert large sums of fiat currency into crypto without proper identity checks or reporting requirements, making them tailor-made for criminal use.
On July 22th, 2020, the U.S. DOJ announced that Herocoin’s crypto ATMs were operating as an illegal money services business, processing between $15 million and $25 million — including proceeds from criminal activities — through in-person exchanges and ATM transactions.
In 2024, the UK Financial Conduct Authority (FCA) charged its first individual with operating an illegal network of crypto ATMs, marking the FCA’s first criminal prosecution under the Money Laundering Regulations 2017. Therese Chambers of the FCA stated: “Our message today is clear. If you’re illegally operating a crypto ATM, we will stop you. If you’re using a crypto ATM, you are handing your money directly to criminals. Criminals can exploit crypto ATMs to launder money globally.”
Most of the time Crypto ATMs are used to launder proceeds from the sale of illegal drugs and human trafficking victims, with the funds then being sent to cryptocurrency wallets controlled by the crime syndicate.
Regulatory Crackdowns and the Shutdown of Hundreds of Crypto ATMs
Crypto ATM Providers’ Stance on Criminal Exploitation
Regarding the criminal use of Crypto ATMs, most providers are burying their heads in the sand.
In response to accusations that their machines facilitate criminal activities, Bitcoin ATM providers like Coinstar argue that their kiosks enhance accessibility to cryptocurrency, especially for individuals without access to traditional banking services.
They emphasize that these machines enable users to securely purchase cryptocurrencies like stablecoins, which track the U.S. dollar, providing an accessible way to store value.
Coinstar explains, “As crypto usage grows worldwide, our customers will seek greater access to buying and using this new form of currency. Coinstar’s flexible platform and cash acceptor on select kiosks enable Coinme to reach a wide customer base to conveniently provide crypto at the local level.”
In other words, the value they provide to citizens outweighs their criminal use.
Bitcoin Depot, which alone account for 21.9% of crypto ATMs defend itself by saying that they post “scam warnings” and “has screen prompts that warn customers of scam potentials,” in an interview with Cointelegraph.
The top 10 operators run 28,691 crypto ATMs, about 74% of the total. Bitcoin Depot, which operates 8,512 (21.9%) machines, told Cointelegraph that it “posts scam warnings” on its kiosks and “has screen prompts that warn customers of scam potentials.”
Well, those arguments appears to be inconsequential to many regulatories bodies around the world.
The rising use of Crypto ATMs in criminal activity has not gone unnoticed by regulators.
Crypto ATMs: Under Increased Regulatory Scrutiny
Several countries have moved to impose stricter regulations on Crypto ATMs, including requiring operators to implement more rigorous KYC and AML protocols. For instance:
The Financial Action Task Force (FATF) has issued guidelines requiring Crypto ATM operators to adhere to the same AML and KYC regulations as traditional financial institutions.The U.S. Financial Crimes Enforcement Network (FinCEN) now mandates that all Crypto ATM operators register as money services businesses and report suspicious transactions.
If they do not comply or are actively used in fraud, extortion, or scams, law enforcement will shut them down.
That’s how the global Bitcoin ATM network lost over 600 machines in 2 months by September 2024, with the United States recording the most shutdowns.
The crackdown on crypto ATMs is intensifying globally.
On August 20, 2024, Germany’s Federal Financial Supervisory Authority (BaFin) seized illegal machines from 35 locations and €25 million in cash. German authorities warned that crypto ATMs could become hotspots for crime if operators fail to implement proper KYC controls for transactions exceeding €10,000. In such cases, these operators could face the same consequences as illegal crypto ATMs.
Countries including the United Kingdom, China, and India have either banned or severely restricted the operation of cryptocurrency ATMs, primarily due to concerns over money laundering and regulatory compliance issues. In the UK, the FCA enforces strict regulations, allowing no legally authorized crypto ATMs to operate as of 2024.
Meanwhile, China has fully banned most cryptocurrency-related activities, including crypto ATMs, as part of its broader restriction on cryptocurrency exchanges and initial coin offerings. India has also imposed significant regulatory hurdles, effectively limiting the operation of crypto ATMs, though discussions around regulations continue
Crypto ATMs are banned in Singapore as part of the Monetary Authority of Singapore’s broader efforts to regulate cryptocurrency advertising to the public.
Other countries, such as Canada and Japan, have implemented strict compliance frameworks that require crypto ATM operators to register and adhere to AML and KYC rules, to reduce the risk of illicit transactions.
Conclusion
In addition, to the increased criminal use of Crypto ATMs, they also present another type of risk.
There is no centralized governing body overseeing crypto ATMs, leaving operators to handle security independently, with varying practices. With the increasing implementation of KYC and AML regulations, these machines now collect vast amounts of sensitive personal data, heightening concerns about data security and privacy.
“It’s clear that these machines are particularly vulnerable to both physical and cyber threats, making them a prime target for hackers and thieves,” said Timothy Bates, clinical professor of cybersecurity at the University of Michigan’s College of Innovation and Technology, in an interview with CNBC.
For him, cyber threats like malware are “especially concerning for ATMs that may not receive regular software updates or security patches.”
“If the machine’s network communications are not adequately secured, attackers can intercept data transfers between the ATM and the server, leading to data theft or unauthorized access,” Bates further highlighted.
Given the security risks they pose and the criminal activities they facilitate, the future of crypto ATMs is likely to be rocky, to say the least.
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Crypto ATMs: Plagued by Scams and Money Laundering was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.