Just Five Services Launder Half of All Illicit Crypto: New study – Decrypt

In brief

  • The Chainalysis 2021 Crypto Crime Report found that 55% of illicit crypto funds are eventually deposited in just five services.
  • The largest launderers are reliant on illegal operations to stay in business.
  • Fiat money laundering still dwarfs crypto-based criminal activity.

A new report from blockchain insights firm Chainalysis found that a sizable majority of ill-gotten crypto flows through just a few hundred deposit addresses and a handful of services, providing juicy targets for law enforcement looking to clamp down on digital money laundering.

The Chainalysis 2021 Crypto Crime Report found that 55% of all illicit crypto funds–those acquired through scams or ransomware, or used in darknet markets– are laundered through just 5 exchange services using approximately 270 unique deposit addresses. 

The report also concluded that the largest processors of illicit funds, those receiving more than $25 million annually, are explicitly servicing criminal clients and would be unlikely to be able to stay in business without them. Identifying and prosecuting the owners of these deposit addresses could take away much of the infrastructure currently being used to digitally launder dirty assets.

Chainalysis works with crypto exchanges and law enforcement to identify addresses of crypto wallets used by phishing or social media scams, ransomware, darknet market users, and other criminal elements, tracking funds as they move through multiple wallets or exchanges to their final deposit addresses. Those addresses are used to identify other depositors, allowing researchers to get an incomplete but valuable picture of the digital money laundering universe. 

Without leveling any specific accusations, Chainalysis called out ‘nested services’ including itBit nested at Paxos and Changelly nested at HitBTC, as significant sources of money laundering exchange activity. These third-party services tap into the larger exchange’s trading pairs and liquidity, preferred because they mask illicit activity within the overall pool of transactions from the parent exchange.

Money laundering has been a persistent issue in the world of trustless blockchain technology, with Dutch officials seizing more than $30 million in Bitcoin in October 2020 and drug-related arrests in California connected to crypto money laundering in November. 

But according to the Society for Worldwide Interbank Financial Telecommunication (SWIFT), illegal activity is still a far greater issue in the world of fiat currency, where an estimated $2 trillion is laundered through more traditional means– compared to just $2 billion via crypto, according to Ciphertrace. Being the subject of Chainalysis-level research and having all activity recorded forever on-chain, it turns out, might not be the most appealing platform for the bad guys after all.

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