Money Laundering through Crypto Methods

Money laundering is referring to the process of making and masking large amounts of money generated by criminal activity, as if it has come from a legitimate source. Through the process of “laundering”, dirty money seems to be actually clean.

The action of money laundering is evolving quicker than the laws made to curb it. It is no surprise that the digitalization of commerce money laundering has entered the multi water of cyberspace. Over the past few years, the prevalence of using cryptocurrency as a means for laundering money has seen an exponentially upwards trend. Its illicit usage having grown to blanket darknet crime has become a staple of cybercrime of all magnitudes.

The estimated amount of money laundered globally in one year is 2 – 5% of global GDP, or $800 billion – $2 trillion in current US dollars. Due to the clandestine nature of money laundering, it is however difficult to estimate the total amount of money that goes through the laundering cycle.

Some of the most popular methods employed by criminals for laundering funds on the blockchain:

  1. Nested services
  2. Gambling platform
  3. Mixers
  4. Non-compliant exchanges
  5. Services headquartered in high-risk jurisdictions

Criminals utilize different methods and services that send funds through numerous addresses or businesses to obscure their origins. The assets are then sent from a seemingly legitimate source to a destination address or an exchange to be liquidated. This process makes it very difficult to trace laundered funds back to illicit activities.

Blockchain is essentially a digital record of transactions that is duplicated and distributed across an entire network of users. As a result, such transactions are controlled by the users themselves without involving any third party.

Although it’s nearly impossible to find out the identity of a particular crypto wallet owner, the transaction history with records of senders and recipients account date time, and payment amount is available to all network participants.

Methods of laundering money

Criminals use a variety of methods with diversity and complexities to dilute the credibility of such records. The simplest method also known as the appeal chain transfers money in rapid and automated transactions from one bitcoin wallet to another through several thousand intermittent transactions. This not only hides the origin of money but also reduces the risk of the setting of any alarms. Another classic method to launder money is to manually mix transactions. Criminals who use this method generally send funds through several wallets of different users and make legitimate crypto-cash with illegal money. Third and perhaps the most popular method is called chain hopping. In a matter similar to using an appealing chain, this method involves the movement of money from one wallet to another. However, the difference here is that the money is transferred through several different cryptocurrencies and blockchains to get away from bitcoin into other more anonymous cryptocurrencies. The idea is to make an investigator lose track of transactions and when their attention is off the chain of transactions to convert it back to bitcoin as a liquefiable currency.

However, laundering money via cryptocurrency is no longer as easy as it sounds. Also, police and regulators may once have been clueless but now they have years of cryptocurrency investigation experience under their belts. Which has made detecting suspicious patterns in the crypto exchange significantly easier and faster. However, the main hurdle is the cash itself. No matter how complex the transaction system is. In the end, the money has to go through a broker. So authorities can follow a complex and convoluted transaction chain from its origin to its destination which is usually a broker who converts bitcoin to fiat.

Exchanges are more identifiable and fewer in number than the million crypto transactions, so it becomes possible for authorities to retrace a chain of transactions from here. In the end, it becomes only a matter of time before the culprit is found. In Regulated jurisdictions like the US, Japan, and European union exchanges are required to verify the identity of the users which makes it a lot harder to launder money.

There still exists some anonymized cryptocurrencies which facilitate the undetected transfer of money. With the darknet without going anywhere anytime soon, there perhaps will always be a need for a concealable exchange of money. And where there is demand, there is always a supply.  To sum it up white the magnitude of money laundering via crypto will surely suffer the practice will stay alive in some shape and form for the foreseeable future.

Monero – untraceable cryptocurrency

Money transfer is so sophisticated that the complexity of tracking it eventually exceeds the time and resources to do so. Since most of the cryptocurrency market is not governed by a central body it’s relatively easier to provide security to transactions over a cryptocurrency exchange.

Development of an anti-money laundering system

What are the Three Stages of Money Laundering?

  1. Placement
  2. Layering
  3. Integration

If you want to work in the anti-money laundering industry there is also a well-known certificate ACAMS certificate which represents Certified Anti-Money Laundering Specialist.

How is the Placement Money Laundering Stage Archived? Several methods include:

  • Blending funds
  • Invoice fraud
  • Through ‘smurfing’
  • Offshore Accounts
  • Carrying Small Sums of Cash Abroad
  • Through Aborted Transactions

How is the Layering Stage of Money Laundering Archived?

  • Moving money electronically between different countries using loopholes in legislation
  • Converting money into financial instruments such as stocks
  • Investing in real estate or ‘shell’ companies with a functional front

How is the Integration Money Laundering Stage Achieved?

  • Investments into the property market, high-end cars, artwork, jewelry, or other highly-priced commodities
  • False invoices with the over-evaluation of the value of goods imported or exported into a country

That being said, we can see that criminals utilize different methods and services that send funds through numerous addresses or businesses to obscure their origins. This process makes it very difficult to trace laundered funds back to illicit activities. However, nowadays we are using better techniques to combat and identity such crimes, even on the blockchain.

Cyber Threat Defense’s division of CTI investigated several cybercrimes and successfully managed to track down the malicious actors.

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