Chainalysis Report: Crypto Crime Tactics Evolve Amid Dip in Digital Money Laundering
Summary:
The "2024 Crypto Crime Money Laundering Report" by Chainalysis reveals a significant decrease in cryptocurrency laundering, partially due to U.S. authorities' crackdown on crypto mixers. Despite this, cybercriminals like the Lazarus Group continue to adapt their tactics for disguising illicitly gained funds. The study also notes that cross-chain bridges, which facilitate fund transfers across different blockchains, are increasingly being used by crypto criminals, marking a shift in money laundering patterns. Chainalysis highlights the need for bridge developers and operators to adopt tools that detect and prevent misuse to mitigate potential risks.
Digital currencies have ushered in a fresh arena for money laundering, defying the conventional practices employed to hide illegitimate monetary origins. Underpinning this issue is blockchain technology, offering a clear ledger system that exposes all transactions to public view. Despite this transparency, lawbreakers use innovative ways to cover their monetary tracks, aiming to transform their unlawfully acquired cryptocurrencies into regular currency without being noticed.
The "2024 Crypto Crime Money Laundering Report" presented by Chainalysis underscores a remarkable evolution in these individuals' strategies, reflecting broader changes in digital financial crime. This assessment underlines not just wrongdoers’ ability to adapt to new technologies but also the Continued struggle between these illicit actors and efforts to regulate and curb money laundering in the digital age.
Chainalysis's latest findings show a marked change in cryptocurrency dealings linked to illicit activities in 2023. Malicious addresses moved $22.2 billion in cryptocurrency to different services, a considerable decrease from $31.5 billion in 2022. These numbers show that there are other factors beyond simple transaction slow-downs affecting the reduction in cryptocurrency laundering.
A significant reason for this reduction in cryptocurrency laundering can be attributed to the aggressive measures taken by U.S. authorities against crypto mixers, a service notorious for hiding illegal funds. This intensified prosecution has significantly hindered their operations in the laundering ecosystem.
The crypto mixer industry saw a big change when Tornado Cash was shut down on August 8, 2022. This was then followed by the closure of Sinbad by U.S. authorities on November 29, 2023. These shutdowns had a significant impact on cryptocurrency launderers who relied on mixers to hide their illegal funds' origins.
However, despite U.S. efforts to break down cryptocurrency laundering and the closure of Sinbad, the Lazarus Group, an infamous North Korean hacker collective, has quickly adapted. They have started receiving funds via YoMix starting January 2024. YoMix's activity surged five times in 2023, and a third of this inflow can be traced back to wallets linked to cryptocurrency thefts. This highlights cybercriminals' resilience in adapting to regulatory restrictions.
With illicit services shrinking, Chainalysis notes a shift in the laundering landscape with more illegal cryptocurrency funds now moving into decentralized finance (DeFi) protocols. The report specifically mentions an increase in funds moving towards gambling services and bridge protocols, suggesting criminals are evolving their strategies to hide their illicit funds.
Crypto criminals keep showing a preference for centralized exchanges (CEX) to funnel illegal funds, even as their tactics change. While the rise in illegal funds shifting through cross-chain bridges in 2023 might seem meagre compared to centralized exchanges (CEX), it signals an uptick in their use for illicit transfer.
Using centralized exchanges (CEX) poses a risk as authorities or exchanges can freeze illegal funds. On the other side, decentralized protocols and exchanges lack such controls, providing criminals with fewer barriers. However, on-chain analysts can still trace fund movements through DeFi protocols, an endeavor more challenging with centralized services.
Chainalysis's research identifies a clear trend: stolen funds are increasingly being redirected to cross-chain bridges, making them a preferable destination for illicit activities.
Kim Grauer, Director of Research at Chainalysis, explained to Cointelegraph that Avalanche and THORChain are notably popular blockchains for illicit activities according to their most recent data. Crypto criminals are increasingly taking advantage of cross-chain bridges that allow the transfer of funds across different blockchains, aiding in their attempts to mask their laundering efforts.
This approach allows for a broader dispersion of illegal funds across various services and deposit addresses, making detection efforts by law enforcement and exchange compliance teams more complex. Furthermore, distributing assets across multiple addresses aims to decrease risks associated with any single address being frozen due to suspicious activities.
Cross-chain bridges, functioning via smart contracts, have the potential to block money from sanctioned organizations like the Lazarus Group by implementing blacklists. Grauer explained that this mechanism is not just theoretical - The Office of Foreign Assets Control (OFAC) has already compiled a list of sanctioned wallet addresses. Crypto companies are using this list to prevent these wallets from transacting on their platforms. She emphasized the expectation for service providers to actively identify and deter potential illegal activities, including money laundering.
She also proposed that bridge developers and operators could use blockchain analysis tools to detect and prevent misuse by illegal actors. Failing to adopt such preventive measures poses a risk, especially for bridges frequently used by entities like the Lazarus Group. Continuing this trend could force bridges to adopt stricter regulatory measures to avoid outcomes similar to those of Sinbad or Tornado Cash.
Published At
2/15/2024 9:48:54 PM
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