California-based blockchain and cryptocurrency security firm CipherTrace released its Q2 2018 report in July 2018 and noted the rise of cryptocurrency crime, money laundering, and other illicit activities. One particular item of note was that $1.2 billion has been laundered through cryptocurrency tools such as bitcoin tumblers and privacy-centric altcoins like zcash and monero.
On the back of increased awareness after 2017’s famous bull run, the report stated that nearly three times as much cryptocurrency was stolen in the first half of 2018 than all of the previous year. Furthermore, dark market lords and hackers are laundering money via digital assets as bitcoin tumblers, and privacy coins, are deemed as reliable options.
CipherTrace observed that criminals made away with $1.2 billion in cryptocurrency from exchanges in 2017-18, with the U.S. Federal Bureau of Investigation (FBI) registering a six-fold increase in complaints, regarding cryptocurrency crime, in 2018 compared to 2015.
The report identifies criminals as the “early adopters of new technologies,” and considers it unsurprising that the pseudonymous nature of bitcoin propelled the rise in misuse. In particular, criminals may find the lack of identification, name, or bank details while using cryptocurrencies as beneficial to their line of work.
CipherTrace described the various steps involved in laundering money via cryptocurrencies. To start, a “cleansing” process called layering is conducted by criminals, involving moving money into the cryptocurrency system by using mixers, tumblers, and chain hopping.
They may also use privacy coins like zcash and monero, which have come under scrutiny from law enforcement agencies including the U.S. Secret Service.
Next, the criminals deploy various tumblers to spin addresses and make it progressively harder for investigators to follow the transaction’s path. Notably, while criminals invariably lose some percentage of their ill-gotten gains during this process, the crypto-to-fiat is ultimately legitimate in law books.
The purpose of these money-laundering services is to obfuscate the origin and receipt of cryptocurrencies by mixing the funds of various clients for a paltry sum of one to three percent per transaction.
Citing FBI statistics, the report also noted that cryptocurrency-related ransoms are on the rise. Over $58.3 million was stolen in 2017 in cyber-ransoms, largely in the pioneer cryptocurrency bitcoin and other related digital assets. Meanwhile, on June 20, 2018, the Secret Service announced it had “seized over $28 million in cryptocurrencies in the course of our criminal investigations, primarily in the form of bitcoin.”
The Financial Crimes Enforcement Network (FinCEN) echoed the FBI’s concerns, with Thomas Ott, Associate Director of the Department of the Treasury’s bureau adding that the agency has “seen virtual currency exploited to support billions of dollars in what we would consider the suspicious activity.”
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Last modified: July 2, 2020 11:46 PM UTC