Cryptocurrency Laundering: A Growing Concern as Criminals Convert Illicit Funds into Cash
A recent study by Chainalysis has shed light on the alarming trend of cryptocurrency laundering, where criminals convert their illicit funds into cash using a network of nested services. These services are built on top of larger exchanges and use those exchanges’ deposit addresses to access liquidity and trading pairs.
The Alarming Trend
According to the report, a small group of nested services is responsible for facilitating the majority of money laundering activity, either intentionally or unintentionally. The study found that criminal balances dropped in 2022, from $12 billion to just $2.9 billion, likely due to price declines and successful seizures by law enforcement.
Underground Money Laundering Services on the Rise
The report highlights the growing use of underground money laundering services, with an estimated $6 billion in cryptocurrency value received by wallets fitting certain criteria in 2022. This increase may be attributed to high-risk exchanges facing increased pressure from law enforcement, as seen in the cases of Garantex and Bitzlato.
Stolen Funds Dominate On-Chain Criminal Balances
Chainalysis also tracked criminal balances granularly, finding that stolen funds dominate on-chain criminal balances. This is likely due to the fact that the amount of cryptocurrency stolen in hacks has skyrocketed over the last two years, making it difficult for hackers to move stolen funds to a fiat off-ramp.
The Importance of Tracking Criminal Balances
The report concludes by emphasizing the importance of tracking criminal balances, as they represent a lower-bound estimate of cryptocurrency that could potentially be seized by law enforcement. With investigative agencies continuing to ramp up their ability to seize cryptocurrency, there are still more opportunities for successful seizures and a crucial difference between financial investigations in cryptocurrency versus fiat: in cryptocurrency, criminal holdings can’t be stashed away in opaque networks of banks and shell corporations – almost everything is out in the open.
Key Takeaways:
- A small group of nested services facilitates the majority of money laundering activity
- Criminal balances dropped in 2022, likely due to price declines and successful seizures by law enforcement
- Underground money laundering services are on the rise, with an estimated $6 billion in cryptocurrency value received by wallets fitting certain criteria in 2022
- Stolen funds dominate on-chain criminal balances, making it difficult for hackers to move stolen funds to a fiat off-ramp
- Investigative agencies continue to ramp up their ability to seize cryptocurrency, with opportunities still available for successful seizures.