One of the most common – and misguided – arguments against the use of cryptocurrency is the assertion that it is a haven for criminal enterprises to hide their money. While this has been debunked in a number of studies, with high-profile reports from Interpol and others showing that most criminal money movement still takes place using fiat, a new report puts things into perspective. Jason Simon, an expert in cryptocurrency and FinTech, highlights the findings of a Chainalysis study that shows that cryptocurrency money laundering is conducted using only a small number of addresses.
Chainanalysis conducted an analysis of blockchain movements and discovered that criminals who keep their funds in digital currencies have a tendency to launder the money through a small collective of online services. The group includes services like high-risk, low-reputation cryptocurrency exchanges, unlicensed online gambling platforms, mixing services and financial services that in high-risk jurisdictions. The analysis was performed studying addresses that have already been connected to online scams, ransomware attacks, terrorist funding, hacks, dark web marketplaces and similar malicious activity.
The analysis revealed that all of the money laundering it was able to review was conducted using just 270 blockchain addresses. They accounted for 55% of cryptocurrency associated with criminal activity. In addition, 1,867 addresses received 75% of all criminally-linked cryptocurrency funds in 2020, a sum estimated at around $1.7 billion. “This is an indication that the majority of the illegal activity conducted on the various blockchains can be traced to the same group of individuals,” explains Simon. “It’s also an increase in concentration from what was seen in 2020. In the fiat realm, money laundering is more widespread and has been linked to thousands of bank branches and businesses around the world.”
As recent reports have highlighted, cryptocurrency transactions are not as anonymous as once thought. The US Department of Justice was able to recover millions of dollars paid in ransom during the Colonial Pipeline attack, and law enforcement agencies around the world now have better tools to quickly pinpoint criminal activity. As regulations continue to be introduced, it will be increasingly more difficult to conduct any money laundering on the blockchain.