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Traditional Money Launderers Appear to Be Using Cryptocurrency, Chainalysis Finds
Crypto criminals may not be the only ones trying to hide their illicit fund movements on blockchains. Traditional money launderers – criminals operating outside the cryptocurrency sector – may also be moving their money onto the blockchain, according to analytics firm Chainalysis.
Released Thursday, Chainalysis’ latest report on crypto money laundering sheds light on a seemingly thriving world of on-chain money transfers that aren’t definitively illicit but nonetheless share the hallmarks of transactions that would raise eyebrows at banks.
Traditional money launderers are starting to use crypto networks to create a “large-scale money laundering infrastructure” to clean money coming from outside of crypto, Kim Grauer, head of research at Chainalysis, told CoinDesk.
These transfers are not from the cryptocurrency scams, thefts, and ransomware attacks that Chainalysis is known for reporting on the blockchain, the transparent digital ledger of all crypto transactions. Their software and tagging systems help cryptocurrency exchanges and other entities avoid accepting funds from criminal activity and help government investigators track down suspects.
By contrast, this more opaque category of transactions comes from wallets that aren’t known to be illicit. And yet they flow across blockchains and exchanges using strategies that traditional financial compliance departments would likely have spotted. For example, breaking themselves into rounded chunks just below know-your-customer reporting thresholds, then gluing them back together later.
Grauer said most blockchain investigators won’t be surprised to learn that this sort of thing has been a potential problem for years. Still, she said the July report is Chainalysis’ first attempt to document the magnitude of the trend across the entire blockchain. The company found it to be an order of magnitude larger than the known illicit transaction base.
Indeed, Chainalysis discovered a glut of transactions valued just below the $10,000 mark – from which additional transactions Know Your Customer rules kick-off – when analyzing all transfers sent to exchanges in 2024.
It’s worth noting that just because a crypto transaction on an exchange is, say, $1 below the $10,000 threshold doesn’t mean it’s definitely illicit. But banks and money services businesses in the traditional financial sector have long used such heuristics to track criminal activity.
“Our investigators consider many elements when determining whether something is suspicious, and that would be one thing, but certainly not enough” to prove wrongdoing, Grauer said.
Far more telling are the transactions that flow through over-the-counter brokers who announce their willingness to turn criminal cryptocurrencies into dollars, no questions asked.
“This is about moving the conversation forward about how we in the crypto industry think about compliance techniques to mirror what has been developed in the traditional banking industry,” Grauer said.