№ 12/2023

Fìnansi Ukr. 2023 (12): 114–125https://doi.org/10.33763/finukr2023.12.114

DIGITALIZATION OF ECONOMY AND FINANCE

DMYTRENKO Tetiana ¹, PARKHOMENKO Yuliya ², VOLKOVA Valeriya ³, HAVRYLENKO Svitlana ⁴

¹Organization for Security and Co-operation in Europe
OrcID ID : https://orcid.org/0000-0002-2632-2986
² Ministry of Digital Transformation of Ukraine
OrcID ID : https://orcid.org/0000-0002-3559-0915
³Kremenchug City Government Council
OrcID ID : https://orcid.org/0000-0001-8270-042X
⁴SESE “The Academy of Financial Management”
OrcID ID : https://orcid.org/0000-0002-3228-9780

Geographic correlations of capital controls, crypto assets, and corruption

Introduction. The emergence of private digital assets (crypto-assets), which mainly rely on cryptography and distributed ledger technology for record-keeping, has led to a host of financial innovations that are likely to revolutionize the form of money and how it is used. These developments create opportunities as well as risks.
Problem Statement. Technological innovations, including those underpinning crypto-assets, have the potential to improve the efficiency and inclusiveness of the financial system and the economy as a whole, but at the same time they raise concerns about consumer and investor protection, market integrity, tax evasion, money laundering and financing of terrorism. The pseudonymous nature of cryptoassets, meaning that transactions require only digital identification, makes them a potential vehicle for illicit flows, including those of corruption.
The purpose. Research on the relationship between the use of crypto-assets and indicators of corruption, capital controls, high inflation in the past and other factors.
Methods. General scientific and special methods are used: analysis, synthesis, grouping, description, comparison, theoretical generalization and abstract-logical.
Results. Analysed interrelationships and correlations among countries regarding capital control, circulation of crypto-assets and corruption; proposals are provided for building a risk-oriented approach to the activities of service providers with virtual assets, banking institutions and payment systems, assessment and mitigating measures of the risk of using virtual assets in laundering proceeds of crime.
Conclusions. Blockchain technology, which underpins the circulation of cryptoassets, is catalysing far-reaching changes in money and finance that will profoundly affect households, corporations, investors, central banks and governments. This technology, while allowing the safe ownership of purely digital objects, even promotes the growth of new digital assets such as non-fungible tokens. One important direction of using DLT technology, on which the circulation of virtual assets is built, can be the development of anti-corruption activities due to the transparency and irreversibility of blockchain records. On the other hand, the correlation between high levels of corruption and widespread use of cryptocurrency can potentially also be explained by the fact that countries with high levels of corruption tend to have weak political and financial institutions, which can reduce trust in the formal banking system. Virtual assets can facilitate corrupt activities with little deterrence to corrupt behaviour due to low transaction costs and little risk of being caught, especially when the virtual asset market is not legalized, i.e. there are no tools for prosecution and punishment.

Keywords:virtual assets, service providers, crypto assets, cryptocurrency, crypto asset market regulation, corruption, bribery, money laundering risks, crypto asset legalization, anti-money laundering

JEL: E42, F65

Dmytrenko T. . Geographic correlations of capital controls, crypto assets, and corruption / T. Dmytrenko, Y. Parkhomenko, V. Volkova, S. Havrylenko // Фінанси України. - 2023. - № 12. - C. 114-125.

Article original in Ukrainian (pp. 114 - 125)

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