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Ill-gotten Crypto Targeted by Law Enforcers

The latest Chainalysis report finds over half of all ill-gotten crypto flows through just a few hundred addresses and a few of its services.

A report from Chainalysis found that a sizable majority of ill-gotten crypto flows through just a few hundred deposit addresses and a handful of services, giving targets for law enforcement looking to clamp down on digital money laundering.

The Chainalysis 2021 Crypto Crime Report found out that 55% of all illicit crypto funds – those acquired through scams or ransomware, or used in darknet transactions – are laundered through only 5 exchange services with 270 unique deposit addresses.

The report also concluded that the biggest processors of the illegal funds, those receiving over $25 million per year, are explicitly servicing criminal clients and will be unlikely to be able to remain in business without them. Identifying and prosecuting the owners of the deposit address could take away a big part of the infrastructure currently being used to digitally launder dirty assets.

Chainalysis works with the crypto exchanges and law enforcement to identify addresses of crypto wallets used by phishing or social media scams, ransomware, darknet market users, and other criminal elements, tracking funds as they transfer through many wallets or exchanges to their final deposit addresses. Those addresses are used to identify some depositors, letting researchers get an incomplete but valuable picture of the digital laundering universe.

Without stating any specific accusations, Chainalysis called out ‘nested services’ with itBit nested at Paxos and Changelly nested at HitBTC, as significant sources of money laundering exchange activity. These third-party services tap into the larger exchange’s trading pairs and liquidity, approved because they mask illicit activity in the overall pool of transactions from the parent exchange.

Money laundering had been a persistent issue in the world of trustless blockchain technology, with Dutch officials getting more than $30 million in Bitcoin in October 2020 and drug-related arrests in California connected to crypto money laundering last November.

However, according to the Society for Worldwide Interbank Financial Telecommunication (SWIFT), illegal activity is still a greater issue in the world of fiat currency, where approximately $2 trillion is laundered through more traditional means – compared to just $2 billion via crypto. Being the subject of Chainalysis-level research and having all activity recorded forever on-chain, as it seems, it might not be the most appealing platform for the bad guys.

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