More than 50 percent of cryptocurrency laundered were cleared through cryptocurrency exchanges, states a report by blockchain analytics firm Chainalysis.
Laundered crypto pushed to online exchanges
Researchers at Chainalysis have revealed that over 64 percent of laundered cryptocurrencies last year were carried out through online exchanges and other related services. The research pointed out that last year, over a billion dollars were laundered in cryptocurrencies via exchanges. The money was traded for currencies to hide their origin before converting them back to fiat currencies.
The research revealed that peer to peer exchange services were used to clear 12 percent of laundered money. This process alongside exchanges makes up over two-thirds of money cleared via cryptocurrencies. The report stated that “a majority of illicit funds actually flow through either exchange or peer-to-peer exchanges, with the rest flowing through other conversion services such as mixing services, [Bitcoin] ATM’s and gambling sites,”
The report further added that a large chunk of these cryptocurrencies was obtained by hacking exchanges directly. Previous reports have indicated that over 36 million USD in Ethereum was stolen in scams and Ponzi’ schemes, and makes up the remainder of the portion.
Tracking cryptocurrency transactions have become possible since the transactions leave their footprints on the blockchain. Chainalysis explained; “As in traditional currencies, money laundering in cryptocurrencies has three distinct phases: placement, layering, and integration. Thus, a successful laundering scheme involves ‘placing’ criminal funds into the financial system, moving them around or ‘layering’ to avoid detection, and then ‘integrating’ those funds into the real economy, usually through a business, to make them look like a legitimate profit.”
The report also noted that conversion services dubbed mixers are used to hide the source and destination of the crypto funds. The attackers use third-party protocols and a ‘slush fund’ of UTXOs (Unspent Transaction Output) to hide the transaction details.
However, even though over a billion dollars were laundered in cryptocurrency last year, it is nothing compared to the amount of fiat laundered in an average year. Reports have suggested that money laundering via fiat currencies accounts for only nearly 2 to 5 percent of global GDP, or 800 billion USD to 2 trillion USD. Nevertheless, cryptocurrency exchanges are advised to improve their security and AML regulations to ensure money laundering issues are avoided better.