Blockchain
Traditional Money Launderers Appear to Be Using Cryptocurrencies, Says Chainalysis
Cryptocurrency criminals may not be the only ones trying to hide their illicit fund movements through blockchains. Traditional money launderers, or criminals who work outside of cryptocurrency, may also be moving their money to blockchain, according to analytics firm Chainalysis.
Released Thursday, Chainalysis’ latest report on cryptocurrency money laundering sheds light on a seemingly thriving world of on-chain money transfers that aren’t exactly illicit but still have transaction characteristics that would make banks frown.
Traditional money launderers are starting to use cryptocurrency networks to create “large-scale money laundering infrastructures” to launder money from sources other than cryptocurrency, Kim Grauer, head of research at Chainalysis, told CoinDesk.
These transfers are not the kind of cryptocurrency scams, thefts, and ransomware attacks that Chainalysis is known for reporting on the blockchain, the transparent digital ledger of all cryptocurrency transactions. Their software and labeling systems help cryptocurrency exchanges and other entities avoid accepting funds from criminal activity and assist government investigators in tracking down suspects.
In contrast, this more opaque class of transactions comes from wallets that aren’t known to be illicit. And yet they flow across blockchains and to exchanges using strategies that traditional financial compliance departments would likely flag. For example: splitting them into rounded tranches just shy of know-your-customer reporting thresholds, then putting them back together later.
Grauer said most on-chain investigators wouldn’t be surprised that this sort of thing has been a potential flashpoint for years. However, he said the July report is Chainalysis’ first attempt to document just how big the trend is across the entire blockchain. The firm found it was orders of magnitude larger than even the base of known illicit transactions.
In fact, Chainalysis found a glut of transactions valued just below the $10,000 threshold, at which point further know-your-customer rules comes into play – when analyzing all transfers sent to exchanges in 2024.
It’s worth noting that just because a cryptocurrency transaction to an exchange is, say, $1 under the $10,000 threshold, it doesn’t necessarily mean it’s illicit. But banks and money services firms in the traditional financial sector have long used heuristics like this to track down criminal activity.
“Our investigators take a lot of factors into consideration when they have to determine whether something is suspicious, and this would be one factor, but certainly not a sufficient one” to prove wrongdoing, Grauer said.
Much more significant are the transactions that flow to over-the-counter brokers who advertise their willingness to turn criminal cryptocurrencies into dollars, no questions asked.
“This is about trying to advance the conversation around how we in the cryptocurrency industry think about compliance techniques, in a way that mirrors what’s been developed in the traditional banking industry,” Grauer said.