As investment funds increasingly add cryptocurrency exposure to their portfolios, a major international police operation has exposed the darker side of this controversial asset class – money laundering.
A multi-billion-pound Russian money laundering network, recently uncovered by the UK's National Crime Agency (NCA), has highlighted how cryptocurrency continues to be a preferred tool for international criminals.
The investigation, dubbed "Operation Destabilise," revealed how Russian cybercriminals and state actors used sophisticated networks to convert illicit cryptocurrency gains into clean cash and assets… the very same cryptocurrency markets where many mainstream investment products now operate.
Crypto investments have always been murky due to poor legislation and a lack of oversight; they’re a risk to investors as there isn’t usually much in the way of a safety net if these trading platforms fail, yet they still lure people in with a promise of crazy high (yet not often realised) returns. There’s also evidence of actual crime taking place outside of crypto’s dodgy set up – and a lot of it.
The NCA investigation began by tracking the Ryuk ransomware group, which had extorted at least £27 million from 149 UK victims: including hospitals, schools, and local authorities. The money trail led to two major laundering networks run by Russian millionaires, operating from Moscow's Federation Tower and spanning 30 countries.
Just as blood diamonds financed conflict in Africa, cryptocurrency has become the go-to payment method for global ransomware attacks.
When hospitals, schools, or businesses fall victim to cyber-attacks, the ransom demands invariably come with cryptocurrency wallet addresses. This isn't coincidental – cryptocurrency's pseudonymous nature and ability to cross borders instantly makes it ideal for criminal enterprises.[I]
The laundering process exposed by Operation Destabilise shows how criminal cryptocurrency gains are "cleaned" through legitimate markets. Criminal groups would swap cryptocurrency for cash with drug gangs, then launder the money through cash-rich businesses before reinvesting in legitimate assets.[ii]
So, is your money funding crime? Possibly. New Zealand investors might be surprised to learn about their exposure to cryptocurrency markets through various investment products:
· KiwiSaver growth and aggressive funds
· Managed funds offering "innovation" or "technology" exposure
· Exchange-traded funds (ETFs) with crypto-related holdings
· Unit trusts investing in companies with significant blockchain assets
· Investment platforms offering direct crypto investment options
According to the NCA's Rob Jones, these crypto markets "support pretty much everything bad you can find in terms of organised crime." This raises serious questions about whether everyday Kiwis' savings should be connected, even indirectly, to such activities.[iii]
Even funds not directly investing in cryptocurrency might hold shares in companies with significant crypto holdings or in investment vehicles with crypto exposure. If you want to avoid it, you need to look for investment options with robust ESG filters applied – crypto doesn’t typically pass those. More on that in a moment…
Of course, there is a bit of legwork involved in making sure your investments align with your values (or simply don’t align with funding crime). Many investors may not even realise their portfolios include crypto until they do an in-depth review, as the details are often buried in fine print and a complex structure.
Moreover, the rise of ethical investing in recent years has shown that New Zealanders care deeply about where their money goes. Just as many investors choose to avoid fossil fuels or tobacco, cryptocurrency's role in criminal enterprises deserves similar scrutiny.
Given the complexity of modern investment products, seeking professional guidance has become increasingly important. A qualified financial adviser can help:
· Deep dive into fund holdings to understand exposure to controversial assets
· Identify indirect cryptocurrency exposure through various investment vehicles
· Assess whether fund managers' crypto investments align with stated ethical policies
· Guide investors toward alternatives that better match their values
It’s a bit like hiring a captain to lead your ship through unfamiliar waters – an adviser knows how to navigate the financial tides, what the signs of danger are, and how to get you where you want to go without undue risk.
For fund managers attracted by cryptocurrency's potential returns, the recent crypto revelations present a moral and practical dilemma. While their investments are legal and regulated, they’re participating in a market where, according to the investigation, legit transactions mix freely with proceeds from cybercrime, drug trafficking, and Russian state espionage.
For everyday New Zealanders, this investigation is a hard reality check about cryptocurrency investments, and how commonly they can appear even if you’re not directly buying in.
When major institutional investors are knowingly or unknowingly providing liquidity that criminal networks exploit, everyday investors need to find options that specifically exclude these.
Regulatory frameworks are still catching up, but luckily, ethical investment is not a new concept and there are some voluntary frameworks in place already. If you’re not sure of your financial institution’s modus operandi, you can always ask.
The first step is understanding what you own. Request a detailed breakdown of your investment holdings and schedule a meeting with a financial adviser to review your portfolio. Ask specific questions about:
1. Direct and indirect cryptocurrency exposure
2. The fund's approach to ethical investing
3. Alternative options that might better align with your values
4. Regular monitoring and reporting of crypto-related holdings
As cryptocurrency continues to mature as an asset class, enhanced regulation and monitoring may help separate legitimate investment activity from criminal enterprise. However, the decentralised nature of cryptocurrency – one of its key selling points – makes this challenging.
For now, investors should carefully consider whether they're comfortable with their savings having even indirect exposure to markets that, while promising high returns, continue to serve as major conduits for international criminal activity.
Working with a qualified financial adviser can help ensure your investments truly reflect your values while still meeting your financial goals. It’s worth a sit-down chat to discuss ethical values, investment goals, and how you don’t need to sacrifice one for the other.
Rory O'Neill is a Financial Adviser as well as the Director and General Manager at Stewart Group, a Hawke's Bay and Wellington-based CEFEX-certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver solutions. Article No 385.
The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
[i] https://news.trust.org/item/20220509151453-e7tlb/
[ii] https://www.theguardian.com/business/2024/dec/04/global-investigation-exposes-alleged-billion-dollar-russian-money-laundering-network; https://www.telegraph.co.uk/news/2024/12/04/russian-money-laundering-network-downfall/
[iii] https://www.nzherald.co.nz/sponsored-stories/celebration-outrage-over-bitcoin/UDK6QINENJHSNO33YO74PMBF7M/
