Money launderers are using cryptocurrencies to hide the origins and movements of illegally earned funds. The cross-border, near-instantaneous, and generally low-cost transactions of crypto are becoming an appealing tool for laundering proceeds from a variety of off-chain offenses, including drug trafficking and fraud, according to a recent report by blockchain analytics firm Chainalysis.
The report emphasizes that the growing ubiquity of cryptocurrencies has expanded their use in laundering money from various illicit activities, not just those inherently linked to the crypto ecosystem. “In 2024, money laundering in crypto encompasses all crime — not just that which is inherently tied to the crypto ecosystem,” the report states.
Methods Used by Launderers
The report outlines several methods used by money launderers to obscure the flow of funds. One such method is the use of crypto mixers or tumblers, which blend cryptocurrencies from multiple sources. Another technique involves using crypto bridges to move funds between different blockchain networks, complicating the detection of their origins. Additionally, launderers employ “hops” by transferring funds through numerous intermediary personal wallets to evade detection.
This trend is emerging alongside a rise in the value of the world’s largest cryptocurrency, Bitcoin, which has surged 55% this year.
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 Chainalysis data. The highest amount recorded was $30 billion in 2022, with the sanctioned Russian crypto exchange Garantex playing a significant role in this figure. The exchange provides launderers with a means to convert illicitly obtained cryptocurrencies into cash.
A Warning
Despite the sophisticated techniques used by money launderers, Chainalysis underscores that these activities can still be traced. They can be analyzed with a higher degree of accuracy and speed, thanks to the inherent transparency of blockchain technology.
“As the global acceptance of cryptocurrencies grows and barriers to entry diminish, Chainalysis expects this type of money laundering to become more significant, as illicit actors historically co-opt new technologies for their own purposes,” the blockchain analytics warns.
Strict Regulations for Crypto
The report calls for stronger regulatory frameworks and international cooperation to effectively address the challenges posed by crypto laundering. Authorities around the world have started taking this as a serious situation. Recently, several big crypto exchanges’ executives have been attacked for not adopting anti-money laundering (AML) compliances. As the crypto ecosystem continues to evolve, the importance of robust oversight and enforcement measures cannot be overstated.
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