A report by Chainalysis stated that crypto criminals laundered a whopping $22.3 billion in 2023 in terms of illicit earnings. However, this was 30 per cent drop from 2022′ staggering $31.5 billion.
From tracking the flow of funds across the blockchain, Chainalysis found that centralised exchanges remain the primary means of off-ramping, which means converting cryptocurrencies into traditional fiat currencies. This makes the destination for over 62 per cent of all funds leaving illicit wallets.
Kim Grauer, Director of Research at Chainalysis, said in a note that the good part is, centralised exchanges offer opportunities to freeze and seize crypto assets associated with illicit activities.
“Thanks to increased investments in compliance, including continued implementation of stringent KYC (know your customer) and AML (anti-money laundering) measures, exchanges and law enforcement agencies can prevent bad actors from cashing out their ill-gotten gains.”
In 2023, over 72 per cent of illicit funds sent to all off-ramping services went to five services, up from 2022’s 69 per cent. Nevertheless, several crypto criminals are applying obfuscation tactics in the diffusion of illicit funds across a large number of deposit addresses. These are similar to bank accounts in the traditional financial systems at centralised exchanges.
The note stated that in 2023, 1,425 deposit addresses received over $1 million in illicit cryptocurrency, for a total of $6.7 billion, which accounts for 46 per cent of all illicit value received by exchanges for the year.
“It’s possible illicit actors are diversifying their money laundering activity across more deposit addresses in attempts to conceal it from law enforcement and exchange compliance teams. This may also be their strategy to lessen the impact of any one deposit address being frozen for suspicious activity,” explained Grauer.
“As a result, fighting crypto crime via the targeting of money laundering infrastructure may require greater diligence and understanding of interconnectedness through on-chain activity than in the past, as the activity is more diffused.”
Though the centralised exchanges continue to see the highest volume of crypto laundering, there is an increased utilisation of DeFi protocols by sophisticated crypto criminals. Overall, the flow of illicit funds to DeFi protocols has followed a steady upward trend over the last five years, and now accounts for 13 per cent of laundering activities.
“And then there is a small subset of organised criminal gangs, such as North Korea’s infamous Lazarus Group, that utilise chain hopping via cross-chain bridges. Cross-chain bridges allow users to move funds from one blockchain to another and last year illicit actors’ use of these bridge protocols for money laundering purposes grew substantially,” said the note.
“The changes in money laundering strategies we’ve seen from crypto criminals like Lazarus Group serve as an important reminder that the most sophisticated illicit actors are always adapting their money laundering strategy and exploiting new kinds of crypto services. Law enforcement and compliance teams can be more effective by studying these new laundering methods and becoming familiar with the on-chain patterns associated with them. Many of these methods, including chain hopping, can be traced using Chainalysis investigative solutions,” Grauer added.
