Photo by PlanetCare via Unsplash edited by Cointimes.
Money laundering is what allows criminals to access the funds they’ve made through their illicit activities, and it’s no different in the crypto market.
As explained by Chainalysis in the report on the subject, “the purpose of money laundering in the crypto industry is to move funds to addresses where their original criminal source cannot be detected, and eventually to a service that allows cryptocurrency to be exchanged for cash, which usually means exchanges.”
Therefore, in the industry, money laundering activity typically involves two types of on-chain entities: intermediary services and wallets, which may include personal wallets, mixers, and marketplaces on the dark web; and services that allow the exchange of cryptocurrencies for fiat money, “once the funds can no longer be traced in blockchain analysis.”
With that in mind, Chainalysis was able to investigate money laundering in the crypto industry during 2022. In total, illicit addresses sent nearly $23.8 billion USD worth of cryptocurrency during the year, a 68.0% increase from 2021 .
“As is typically the case, centralized exchanges were the biggest recipient of illicit cryptocurrencies, receiving just under half of all funds sent from illicit addresses. This is notable because these exchanges often have measures in place to report activity and intervene against the users in question, but they are where cryptocurrencies are turned into cash.”
Hacks, DeFi and money laundering
As illustrated in the graph above, more illicit funds have been sent to DeFi protocols than ever before. However, this decentralized type of financial services is not used in the laundering process because, unlike centralized services, all activity is recorded on-chain.
It is also worth mentioning that DeFi protocols do not allow converting cryptocurrencies to fiat, so most of these funds are likely transferred to other services.
If you would like to know more about the legitimate DeFi trends and projects for this year, you can access and read the Cointimes Club report for free: Cointimes vision for DeFi in 2023.
As noted by Chainalysis, hackers who possess stolen cryptocurrencies are the only criminal category that sends the most funds to DeFi protocols, accounting for 57% of the total.
In addition to hackers, criminals send most of their funds directly to centralized exchanges, with the exception of sellers and administrators of marketplaces on the darknet, who “send most of their funds to other illicit services, some of which may offer money laundering services. Of money.”
Clandestine services on the darknet
Overall mixer usage declined in 2022, but illicit usage reached an all-time high, absorbing 8% of all funds sent from illicit addresses in the last year. According to Chainalysis, clandestine money laundering services are a growing concern, especially as the company has seen the growth of services that are not as accessible to the public as standard mixers.
“Some function simply as networks of private wallets, while others are more like exchanges or instant mixers. What often connects them is that they move cryptocurrencies to exchanges on behalf of the cybercriminals, exchange them for clean fiat or cryptocurrencies, and then send them back to the criminals.”
Still, criminal profits have dropped in 2022, from $12 billion at the end of 2021 to just $2.9 billion last year. Falling values during the bear market and successful seizures by official bodies are the most likely causes of this.
Read too:
