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Cryptocurrencies increasingly used for money laundering, Chainalysis finds
In this illustration photo, a visual representation of the digital cryptocurrency, Bitcoin, is displayed in Paris, France, March 5, 2024.
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Money launderers are increasingly using cryptocurrencies to conceal the origin and movement of illegally obtained funds, according to a report by Chainalysis.
The report, which studied trends and new methods of money laundering, said cryptocurrency is being used for off-chain crimes such as drug trafficking and fraud because cryptocurrency is “cross-border, virtually instantaneous, and generally inexpensive to transact.”
“The growing ubiquity of cryptocurrencies has made them a tool for laundering the proceeds of various off-chain crimes, such as drug trafficking and fraud. By 2024, cryptocurrency money laundering will encompass all crimes, not just those intrinsically linked to the cryptocurrency ecosystem,” the blockchain analytics firm said in a July report.
It comes as the value of the world’s largest cryptocurrency, bitcoin, has risen nearly 55% since the start of the year, according to LSEG.
Money launderers use various methods such as cryptocurrency mixers, cross-chain bridges, and “hopping” between wallets to conceal the flow of funds.
Cryptocurrency mixers, or tumblers, involve mixing cryptocurrencies from different sources to make it difficult to detect their origin and ownership. Malicious actors also exploit cryptographic bridges to obscure the origin of funds by moving them between different blockchain networks.
“Hops” involve moving funds between many intermediary personal wallets to avoid detection.
Since 2019, nearly $100 billion in funds have been transferred from known illicit wallets to conversion services – where cryptocurrencies are converted into fiat currency, according to data from Chainalysis. The highest amount identified was $30 billion in 2022.
Russian Crypto Exchange Garantex Sanctioned is largely responsible for the record amount because its services offer launderers a way to convert illegally obtained cryptocurrencies into cash.
But these illegitimate activities can still be detected, Chainalysis said.
Thanks to the transparency of blockchain, cryptocurrency laundering can be tracked and analyzed with a higher degree of accuracy and speed than traditional financial systems. Nevertheless, cryptocurrency laundering is expected to become more widespread, the report said.
“As global acceptance of cryptocurrencies increases and barriers to entry decrease, Chainalysis expects this type of money laundering to become more prominent, as illicit actors historically appropriate new technologies for their own purposes,” the blockchain analytics firm said.