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Criminals laundered $2.8 billion in 2019 using crypto exchanges, finds a new analysis

January 16, 2020
A black keyboard with a red backlight.
A black keyboard with a red backlight.Unsplash | Taskin Ashiq

Criminals appear to be laundering an increasing amount of cryptocurrency by moving it to reputable exchanges, according to blockchain analytics firm Chainalysis. 

The news: Chainalysis, which uses data analysis to trace cryptocurrency transactions and characterize users, says that in 2019 criminal entities moved $2.8 billion in Bitcoin to exchanges, up from around $1 billion in 2018. More than half of that went to the two most popular ones, Binance and Huobi, it says.

Wait, what’s going on? Criminals have to convert cryptocurrency they have acquired illegally into cash. The popular exchanges are subject to anti-money-laundering rules that require them to know who their customers are. But Chainalysis’s researchers think criminals have found a workaround: third-party “over the counter” (OTC) brokers. These brokers facilitate trades between buyers and sellers who have chosen to avoid transacting via a regulated exchange. “The problem, however, is that while most OTC brokers run a legitimate business, some of them specialize in providing money laundering services for criminals,” according to Chainalysis.

The “Rogue 100”: According to the new analysis, only a small subset of OTC brokers are facilitating most of this criminal activity. Chainalysis has compiled a list of 100 that appear to provide money-laundering services, which it has dubbed the “Rogue 100.” The list’s members are “extremely active traders” who have been receiving steadily increasing amounts of cryptocurrency each month since 2017, according to Chainalysis, which says the activity of these traders “skyrocketed” this year.

What is the solution? Exchanges should be stricter in scrutinizing OTC desks, says Chainalysis. Conveniently for the company, this process may include the greater use of analytics tools like those it has developed. Cracking down on rogue OTC brokers could have broad effects, the company says: “After all, if there were no way for bad actors to cash out … there’d be far less incentive for them to commit crimes in the first place.”

Keep up with the fast-moving and sometimes baffling world of cryptocurrencies and blockchains with our weekly newsletter Chain Letter. Subscribe here. It’s free!

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