The growth of cryptocurrency over the past few years has created new opportunities for investors and businesses worldwide. However, it also comes with a bigger problem—money laundering. This refers to using crypto to hide the source of illegal funds.
Although the blockchain system provides transparency in transaction records, the use of anonymous wallets and DeFi platforms that are not regulated by the government makes it difficult for law enforcement to trace and track the movement of money.
Most Common Methods of Money Laundering Through Crypto
- Using Mixers or Tumblers
These platforms help conceal transaction traces by mixing legitimate coins with suspicious ones, making the source of the money hard to trace. A notable example is Tornado Cash, which was sanctioned by the U.S. Department of the Treasury in 2022 because it was used by hackers for money laundering.
- Using Decentralized Exchanges (DEXs)
Decentralized exchange platforms (DEX) do not require identity verification (KYC), allowing users to transfer funds between wallets without revealing their identities. This is a significant loophole that criminals exploit to transfer illegal funds.
- Using NFTs to Conceal Transactions
NFTs are not only popular digital assets but have also been used as a money-laundering tool. Criminals create fake NFTs and sell them to themselves through multiple accounts to create seemingly legitimate transactions.
Examples of Money Laundering Cases Involving Crypto
- The Bitfinex Case and $4.5 Billion in Money Laundering
In 2016, Bitfinex, one of the largest crypto exchanges, was hacked, and over 120,000 BTC, worth approximately $4.5 billion, was stolen. Criminals used methods like transferring coins through multiple wallets and utilizing mixing services to conceal traces. However, the U.S. Department of Justice was able to track the transactions and arrest the perpetrators in 2022.
- Lazarus Group and Money Laundering from the Axie Infinity Hack
In 2022, the Lazarus Group, a hacking group linked to the North Korean government, hacked the Ronin network of the famous NFT game Axie Infinity and stole over $620 million. The hackers used DEXs and mixing services like Tornado Cash to conceal their traces.
- Using Binance for $2.35 Billion in Money Laundering
In 2023, reports indicated that Binance was used as a money-laundering channel, with criminals using accounts without KYC verification to transfer large sums of money through multiple accounts. The U.S. government investigated, and Binance was forced to enhance its anti-money laundering measures.
Anti-Money Laundering Measures in the Crypto World
To combat money laundering, governments and regulatory bodies worldwide have implemented various measures such as:
- Enforcing KYC/AML regulations: Most crypto exchanges are required to have user identity verification systems.
- Transaction Monitoring through Blockchain Analytics: Organizations like Chainalysis and Elliptic use AI to analyze transactions and detect suspicious behavior.
- Sanctioning Platforms that Support Money Laundering: For example, Tornado Cash, which was banned by the U.S. government.
Conclusion: Money Laundering in the Crypto World and the Future of Regulation
Money laundering through cryptocurrency is a significant issue that undermines the credibility of the market. While blockchain technology provides transparency, the ability to use anonymous wallets and unregulated platforms allows criminals to exploit this vulnerability.
However, regulatory bodies and government agencies are tightening their scrutiny of crypto transactions, enforcing stricter regulations like KYC and tracking transactions through AI. This could lead to a more transparent and secure future for the crypto market.
As investors or crypto users, what we should do is choose platforms with KYC standards and comply with the law to prevent our assets from being linked to illegal activities, helping to build a safe and sustainable future for the crypto market.