The Rise of On-Chain Money Laundering Beyond Crypto Criminals

Crypto criminals are not the only ones attempting to conceal illicit fund movements within blockchains. According to Chainalysis, a leading analytics company, traditional money launderers operating outside the crypto realm are also leveraging on-chain transfers to move their cash.

Chainalysis published a report unveiling a growing trend of on-chain money transfers that exhibit characteristics typically associated with suspicious transactions in the traditional financial sector, signaling a potential shift in money laundering practices.

Head of Research at Chainalysis, Kim Grauer, emphasized that traditional money launderers are now establishing “large-scale money laundering infrastructure” to anonymize cash flows that originated from non-crypto sources by utilizing crypto networks.

Unlike the well-known illicit activities such as crypto scams and ransomware attacks, these transactions involve wallets not previously linked to criminal behavior. However, their behavior on blockchains mirrors strategies that would trigger scrutiny in traditional financial compliance settings, such as breaking down large amounts into smaller tranches just below reporting thresholds.

Chainalysis’ latest report sheds light on the prevalence of these transactions, revealing a significant volume of transfers hovering slightly below the $10,000 threshold, a key point triggering additional regulatory requirements for exchanges. While a transaction nearing this threshold does not automatically indicate wrongdoing, it aligns with red flags traditionally used in the financial industry to identify potential illicit activities.

Furthermore, the report highlights transactions directed towards over-the-counter brokers that openly facilitate the conversion of illicit crypto funds into fiat currency without due diligence, underscoring the need for enhanced compliance measures within the crypto space to combat money laundering effectively.

Grauer emphasized the importance of adapting compliance techniques from traditional banking to address evolving challenges in identifying and preventing illicit financial activities within the crypto ecosystem.