Crypto: How Criminals Laundered $4 Billion in Dirty Money

Despite restrictions put in place by regulators, criminals have managed to launder $4 billion in dirty money since 2020. Bridges and decentralized platforms are popular with scammers and hackers, according to a study.

Elliptic, a firm specializing in blockchain analysis, has just published a study devoted money laundering through cryptocurrencies. The report, relayed by our colleagues from the specialized media The Block, reveals that criminals have laundered $ 4 billion in dirty money via crypto services since 2020.

Read also: A fake Google application mines cryptocurrencies on thousands of PCs

Decentralized platforms and laundering

Cybercriminals have relied in particular on decentralized exchange platforms. These platforms allow investors to trade tokens through smart contracts. There is no central authority that manages all of the infrastructure. It’s all about blockchain. De facto, there is no one to control the integrity of transactions or claim the identity of users. These decentralized services are different from centralized platforms, like Binance, Coinbase or FTX, which are much more popular with users. Among the main decentralized solutions are Uniswap, Curve or Bancor.

Decentralized services met a colossal success during the bull phase from last year. As Bitcoin approached $70,000, decentralized exchanges surpassed $1 trillion in annual transactions, up 858% from 2020.

Since 2020, $1.2 billion in dirty money has passed through decentralized platforms. In most cases, funds laundered by criminals came from hacks of decentralized finance services or centralized platforms. After their hack, the hackers transfer their loot to these platforms to cover their tracks. The tokens are then converted into other cryptocurrencies and sent to blockchain addresses.

Cryptocurrency bridges

According to Elliptic, the criminals also used bridges to launder money collected through illicit activities. A bridge connects two different blockchains in order to transfer tokens from one network to another. Since 2020, $750 million in illicit funds have been laundered through bridges.

During the operation, the hackers immobilize the dirty money in a smart contract, software that automates the actions of a blockchain. In exchange for the immobilized tokens, they receive other cryptocurrencies on another blockchain. This is how funds are transferred from one network to another.

“Bridges between blockchains are a loophole in the regulatory regime that has been painstakingly established by governments around the world to combat money laundering within cryptocurrencies”explains Tom Robinson, researcher at Elliptic.

The report highlights that most of the dirty money detected (over $540 million) was laundered through RenBridge, a bridge that connects the Bitcoin and Ethereum blockchains. According to Elliptic, the bridge is become particularly popular » from hackers who want to launder money obtained during a hack, fraud or ransomware attack. RenBridge has also facilitated the operations of several Russian-linked ransomware hacker gangs.

The funds stolen during the Nomad hack notably transited through RenBridge. Elliptic explains that it has spotted the trace of 2.4 million dollars in crypto-assets stolen from users of Nomad, another bridge between blockchains.

Indispensable to the functioning of the ecosystem, bridges are also very vulnerable to hacking. According to the latest report from Chainalysis, another specialist in blockchain analysis, bridges are prime targets for hackers because they very often host a central storage space where cryptocurrencies are deposited”. The firm estimates that 2 billion dollars have been stolen during the hacking of bridges this year.

For David Carlisle, vice president of regulatory affairs at Elliptic, bridges are both a blessing and a curse”. Financial regulators should gradually focus on the issue of bridges in the future, says the official, interviewed by CNBC.

The KYC hurdle

Finally, criminals have also gone through exchange services that do not require no KYC (Know Your Customer). This is a procedure that allows a financial entity, such as a crypto exchange, to verify the identity of its customers. Among the information required during a KYC procedure is a selfie, proof of residence, bank details or a copy of the identity card or passport.

While most decentralized platforms have KYC procedures in place, it is still possible to trade currencies on blockchains without disclosing your identity. Just go to services that do not require its users to open an account, such as Bisq. Experts estimate that $1.2 billion in dirty money has been laundered through these KYC-free services since 2020.

A drop in the ocean

Elliptic recalls that the services mentioned in its report, such as decentralized exchanges and bridges, are not not exclusively used by criminals. Most recorded transactions are completely legal. They are made by individuals and institutional investors.

“To be clear, Elliptic is not saying that DEXs or Bridges are used exclusively by criminals, in fact, the opposite is true, they are primarily used by legitimate users”notes Elliptic.

As a study by Chainanalysis points out, illicit activities represent only 0.15% of cryptocurrency transactions. This rate is also falling from year to year as regulators oversee the sector. Cryptos are therefore not the prerogative of scammers, hackers and drug dealers.

In addition, assets laundered through cryptocurrencies represent onlya small part of money laundering in the world. Indeed, the United Nations Office on Drugs and Crime estimates that more than $740 billion is laundered every year. Most often, illicit funds are laundered by passing directly into the traditional financial system, for example via a legitimate company.

Source :

The Block

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Crypto: How Criminals Laundered $4 Billion in Dirty Money

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