According to a report by Chainalysis, sophisticated money laundering techniques are presenting a significant challenge for law enforcement agencies and cryptocurrency service providers.
On July 11, the blockchain analysis firm Chainalysis released its “Money Laundering and Cryptocurrency Report,” highlighting the trend of billions flowing through the crypto ecosystem from illicit wallets to conversion services every month.
The report shows that these flows utilize advanced methods to obscure the origins and movement of these funds.
Masking the trail
One prevalent technique mentioned in the report involves the use of intermediary wallets, or “hops,” to mask the trail of illicit funds.
Such hops make it difficult to trace the flow of funds, with over 80% of the total value in laundering channels passing through intermediary wallets.
The increasing use of stablecoins — such as Tether (USDT) — in these transactions adds another layer of complexity, although it also introduces risks for launderers since stablecoin issuers can freeze funds.
The report highlights the June 2023 Atomic Wallet exploit carried out by North Korea-affiliated hacking group TraderTraitor as an example of the intricate tactics used in crypto-native laundering.
This incident underscores the advanced methods employed to conceal illicitly obtained funds, illustrating the persistent challenge faced by investigators.
Mixers in the mix
Obfuscation services, such as mixers and privacy coins, further complicate tracing illicit funds. One example of a mixer is Tornado Cash, which blends cryptocurrencies from various users to obscure their origins.
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Despite sanctions and regulatory actions, mixers have seen a resurgence in 2024, reflecting their continued popularity among bad actors. Privacy coins, such as Monero (XMR) and Zcash (ZEC), provide enhanced anonymity features that have made tracing such transactions extremely difficult, attracting illicit actors despite regulatory crackdowns.
Centralized exchanges
The report also revealed that centralized exchanges remain a primary destination for illicit funds, with over 50% of these funds ending up at such exchanges due to their high liquidity and integration with traditional financial services.
However, a significant decrease in the volume received by centralized exchanges suggests improved Anti-Money Laundering (AML) programs.
Additionally, over-the-counter brokers, particularly those operating without proper Know Your Customer procedures, have played a crucial role in facilitating the off-ramping of illicit funds.
In such instances, these brokers often advertise their services on platforms with encrypted messages, offering direct conversion to fiat currency and attracting criminals seeking anonymity.
The report underscores the need for continuous advancements in blockchain analysis tools, along with consistent measures from regulations to help combat these sophisticated tactics used in crypto-native money laundering, including proper AML laws.
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