How criminal finances develop through cryptocurrencies
The ways criminals use cryptocurrencies are evolving, and it is spreading to all forms of serious and organised crime. Money laundering networks specialised in large-scale money laundering as-a-service have adopted cryptocurrencies and are offering their services to other criminals, according to a report from Europol “Cryptocurrencies: tracing the evolution of criminal finances”.
The report says cryptocurrencies are also the means of payment of choice for criminal commodities and services, such as drugs or child sexual abuse material (CSAM) purchased online. This applies in particular to listings on dark web marketplaces where they are the main means of payment.
The scale of the illicit use of cryptocurrencies as part of criminal activities is difficult to estimate, according to the report. However, blockchain data company Chainalysis estimates that criminals laundered USD 8.6 billion of cryptocurrency last year and that was an increase of 30% from 2020.
”The use of cryptocurrency as part of criminal schemes is increasing, and the uptake of this payment medium accelerating. However, the overall number and value of cryptocurrency transactions related to criminal activities still represent only a limited share of the criminal economy when compared to cash and other forms of transactions”, Europol says.
”A range of constraints are related to the use of cryptocurrencies, with high volatility a major factor in criminals’ reluctance to use cryptocurrencies for long-term investments.”
”The criminal use of cryptocurrency is no longer primarily confined to cybercrime activities, but now relates to all types of crime that require the transmission of monetary value, including fraud and drug trafficking.”
“Criminals have become more sophisticated in their use of cryptocurrencies”, according to Europol. Funds are reported to increasingly travel through multi-steps involving financial entities, many of which are novel and not yet part of standardised, regulated financial and payment markets.
“Obfuscation methods and other countermeasures continue to be developed and used by criminals.”
”Crypto-swapping services facilitate a quick conversion of one coin into another by placing orders on behalf of users. These transactions are difficult to trace when well-known coins are exchanged into less known ones or privacy coins, enhancing anonymity.”
”The popularity of cryptocurrencies has also led to the creation of instruments that facilitate and expedite their use in daily life, as well as offering opportunities to launder criminal profits. Users can spend their virtual assets in most locations by using crypto debit cards.”
”The quick exchange of cryptocurrency for cash fiat currency and vice versa is facilitated by the use of Bitcoin ATMs (BATMs). Users can send cryptocurrencies to a specific address generated by the BATM and receive cash in return, or insert cash in the physical device in exchange for cryptocurrencies.”
The report says Decentralised Finance (“DeFi”) is another important element in the cryptocurrency market. Decentralised exchanges are focused on turning cryptocurrencies into other coins and currencies.
”As with most technological innovations, cryptocurrencies were initially misused by cybercriminals, before expanding to other types of criminal acts. At the beginning, cybercriminals used to feel safe by simply processing their illicit transactions in Bitcoins.”
”Soon after, it became clear that Bitcoin was far from being anonymous and untraceable, when blockchain analysis resulted in several successful law enforcement investigations. Consequently, the criminal use of cryptocurrencies had to be linked to the use of services that would enhance anonymity. Most relevant cases involve the laundering of criminal proceeds.”
“The development of specialised cryptocurrency money laundering services has inevitably lowered the bar of technical knowledge required, contributing to the widespread use of these techniques by many criminal actors and networks.”
“However, the use of cryptocurrencies for illicit activities seems to comprise only a small part of the overall cryptocurrency economy, and it appears to be comparatively smaller than the amount of illicit funds involved in traditional finance.”
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