The rally is reigniting concerns around money laundering and illicit finance in the cryptocurrency sphere. Transactions involving illicit addresses grew again to $24.2 billion with the top three crimes being child abuse material, ransomware and stolen funds.
The price of Bitcoin has surged over 50% since the start of 2024, and it’s tipped to jump again with the upcoming ‘halving’ (a supply cut that halves the number of new bitcoin issued to the miners who maintain the network). The rally in the world's most popular cryptocurrency has helped lift the entire crypto market, with the total market capitalisation jumping above $2.7 trillion.
The resurgence in crypto comes after a disastrous 2022 that saw over $2 trillion in value wiped out amid the collapse of Terra/Luna, hedge fund Three Arrows Capital, and centralised exchanges like FTX. Heightened regulatory scrutiny and rising interest rates also contributed to the brutal crypto winter.
But investor optimism has been reinvigorated in 2024 by projections that the central banks may soon pause rate hikes as inflation cools. Hopes for wider mainstream adoption through vehicles like Bitcoin spot ETFs have also buoyed crypto prices recently.
However, the run-up is also reigniting concerns around money laundering and illicit finance in the cryptocurrency sphere. According to analysis by blockchain data platform Chainalysis, transactions involving illicit addresses grew again in 2023 to $24.2 billion.
Their latest Crypto Crime Report, noted that, “Bitcoin reigned supreme as the cryptocurrency of choice among cybercriminals, likely due to its high liquidity. But that’s changed over the last two years, with stablecoins now accounting for the majority of all illicit transaction volume. This change also comes alongside recent growth in stablecoins’ share of all crypto activity overall.”
While the raw value transferred to illicit addresses increased, the growth was outpaced by the legitimate crypto economy as adoption rates continue climbing making regulators and compliance professionals stay on high alert as this latest price rally creates more profit incentives for money launderers.
Indeed, global regulations aimed at reining in crypto-related financial crimes have been gaining steam. This ranges from major markets to the smallest with the European Union's Markets in Crypto Assets (MiCA) package to the incoming AML regulation extension to virtual asset service providers (VASPs) in New Zealand.
But crypto's core attributes of decentralisation, its fast pace of innovation, and cross-border transferability make it incredibly challenging for authorities and compliance teams to crack down on.
Again, Chainanalysis notes in their money laundering report, “We saw a huge increase in the volume of funds sent to cross-chain bridges from addresses associated with stolen funds. We also observed a substantial increase in funds sent from ransomware to gambling platforms, and in funds sent to bridges from ransomware wallets.
The changes in money laundering strategy 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.”
As the latest boom plays out, AML professionals will have to up their game if they want to stay ahead of the newest laundering schemes while trying to separate legitimate crypto activities from nefarious exploitation by bad actors across the globe.
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