Cryptocurrencies have been used for money laundering in a recent report by blockchain data platform Chainalysis. The report shows a 30% uptick in money laundering since last year.
$8.6 Billion
The 2022 Crypto Crime Report noted how cybercriminals laundered a massive $8.6 billion worth of Cryptocurrency in 2021. The Crypto Crime Report arrived at this figure by compiling the amount of Cryptocurrency being moved from illicit addresses to addresses hosted by services.
Only A Measure Of Online, Not Offline
While $8.6 billion may seem like a significant amount, the report adds that it does not include the amount from offline crime (e.g., traditional drug trafficking) converted into Cryptocurrency and laundered.
Most Money Laundering Doesn’t Involve Cryptocurrency.
Between $800 billion and $2 trillion of fiat currency (government-issued currency) is laundered each year. This represents as much as 5 per cent of global GDP. By contrast, however, only 0.05 per cent of all cryptocurrency transaction volume was laundered in 2021. So Cryptocurrency is by no means the preferred method for money laundering yet.
Blockchain More Transparent Says Chainalysis
Chainalyis, the report’s author, says that there is a big difference between fiat and cryptocurrency-based money laundering because the transparency of blockchains means that it’s easier to trace how criminals move Cryptocurrency between their wallets and services and try and convert it into cash.
Thieves Use Defi Platforms & Scammers Use Centralised Exchanges
The report highlights how those involved in theft tend to use Defi Platforms (with Defi protocols). Whilst scammers tend to prefer centralised exchanges for their money laundering. The report says that this is because:
– Defi /open finance platforms have no middleman (no bank or credit card issuer as an intermediary in financial transactions) and, therefore, offer greater anonymity, which may be why they received 17 per cent of all funds sent from illicit wallets in 2021 (up from 2 per cent!). Chainalysis report that addresses theft sent just under half of their stolen funds to Defi platforms. That’s around $750 million worth of Cryptocurrency in total.
– Scammers tend to lack technical sophistication. Therefore, they prefer to spend most of their funds on addresses at centralised exchanges.
Looking For Patterns & Using Compliance Checks
Some criminals use Cryptocurrency to launder funds from crimes that happen offline. Unfortunately, it’s not easy to track all money laundering activity. However, uncovering patterns that suggest users may avoid compliance screens and introducing checks can help find more illegal activity.
What Does This Mean For Your Business?
As the report points out, using Cryptocurrency to launder money is becoming increasingly popular. However, it’s still nowhere near as big a problem as fiat-based money laundering, perhaps due to blockchain’s transparency risks, increased checks, and the complexities of using cryptocurrencies not being widely understood. Even most genuine investors and traders don’t fully understand cryptocurrencies. A Cardiff report (March 2021) showed that only 16.9 per cent of investors who have bought Cryptocurrency don’t fully understand its value. Also, it’s potential, and 33.5 per cent of buyers have either little or zero knowledge about cryptocurrencies.
Nevertheless, criminals using Cryptocurrency for money laundering is a growing problem. One measure that could help the problem would be making sure those tasked with investigating it have good knowledge, are trained in cryptocurrency and blockchain analysis and have expert help. Also, more attention needs to be paid to how Defi transactions can be analysed—enlisting the teams behind Defi protocols to screen wallets for suspicious activity and patterns, e.g., prior transactions with known illicit addresses.
