Chainalysis’s Money Laundering Report also touches on prevention strategies adopted by countries around the world, including Singapore and Hong Kong.
A recent update to money laundering policies by local enforcement agencies underscores the growing risk of cryptocurrency being used in money laundering activities. This concern comes on the heels of one of the largest money laundering bust, where authorities seized over S$3 billion in assets, including over S$38 million in cryptocurrencies.
But laundering money from criminal activities is not just limited to this case alone. Beyond this specific incident, cryptocurrencies are also being used as a tool to facilitate illicit activities by laundering proceeds from various criminal areas such as narcotics trafficking and fraud.
Chainalysis’s newly launched Money Laundering Report helps illustrate the extent to which cryptocurrencies are being used by criminals to launder money through both crypto and traditional channels, offering valuable insights for detection and investigation.
Here are some key highlights from the Chainalysis report:
- A prevalent technique involves routing illicit funds through a series of intermediary personal wallets. Within the context of on-chain laundering, these intermediary wallets play a critical role, often accounting for over 80% of the total value transacting through such laundering channels. This multi-step layering process is often used to evade detection by law enforcement and cryptocurrency compliance personnel.
- Mixers are services designed to obfuscate the source and ownership of cryptocurrency funds. They achieve this by blending cryptocurrencies from multiple users into a single pool, effectively erasing the trail of origin. 2022 witnessed a surge in mixer popularity, with received value exceeding $1.5 billion in April. This trend appears to be continuing in 2024, coinciding with a general uptick in market activity.
- The utilisation of Monero, a privacy-focused cryptocurrency, presents a particular challenge in anti-money laundering efforts which is further accentuated by the existence of Monero-compatible instant exchangers that often operate without Know Your Customer (KYC) protocols. These exchangers enable the conversion of other cryptocurrencies into Monero, effectively severing the audit trail and hindering transaction traceability. This lack of transparency has made the token attractive to terrorist organizations like the Islamic State in Khorasan’s media arm, Al Azaim Media, which has openly publicised its Monero donation addresses.
- Chainalysis reveals a concerning trend of illicit funds concentrating in a limited number of centralised exchanges which are not named in the report. As of 2024, a significant increase has been observed in the utilisation of conversion services by actors laundering funds originating from darknet markets, fraudulent activities, and malware distribution. Notably, criminals attempting to convert stolen funds exhibit a tendency to leverage fewer deposit addresses compared to other types of illicit activity.
- A concerning trend has emerged in China where illicit over-the-counter (OTC) operators leverage Telegram channels to provide direct fiat currency conversion services. These services appear specifically designed to facilitate the off-ramping of illicit funds. In some cases, these OTC operators blatantly advertise their ability to convert large amounts of stablecoins stolen from overseas.
The report emphasised the need for a multifaceted approach to combating crypto money laundering. These include having robust policies and prevention strategies such as enhanced KYC/AML protocols and transaction monitoring systems for crypto businesses. Fostering international collaboration among law enforcement agencies and financial institutions is also essential to track and disrupt criminal activity across borders.
Download the Money Laundering Report here.
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