A Recent report from American blockchain analysis firm, Chainalysis, has revealed that a total amount of $22.2 billion was laundered through different cryptocurrency exchanges in 2023.
The report however disclosed that the amount recorded in 2023, was a significant decrease from the $31.5 billion sent in 2022. Chainalysis attributes some of the decline to an overall decrease in crypto transaction volume, both legitimate and illicit.
However, the drop in money laundering activity was steeper at 29.5%, compared to the 14.9% drop in total transaction volume. In the report, centralized exchanges remain the primary destination for funds sent from illicit addresses, at a rate that has remained relatively stable over the last five years.
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Over time, the role of illicit services is reported to have shrunk, while the share of illicit funds going to DeFi protocols has grown. The analysis firm attributes this primarily to the overall growth of DeFi generally during the time period but notes that DeFi’s inherent transparency generally makes it a poor choice for obfuscating the movement of funds.
Notably, the report stated that 2023 was quite similar to 2022 in terms of breakdown of service types used for money laundering, but saw a slight decrease in the share of illicit funds moving to illicit service types, and an increase in funds moving to gambling services and bridge protocols.
Part of the report reads,
“If we zoom in to look at how specific types of crypto criminals laundered money, we can see that there was significant change in some areas. Most notably, we saw a huge increase in the volume of funds sent to cross-chain bridges from addresses associated with stolen funds, a trend we’ll examine in greater detail later. We also observed a substantial increase in funds sent from ransomware to gambling platforms and in funds sent to bridges from ransomware wallets.
“In 2023, 109 exchange deposit addresses received over $10 million worth of illicit cryptocurrency each, and collectively, they received $3.4 billion in illicit cryptocurrency. While that still represents significant concentration, in 2022, only 40 addresses received over $10 million in illicit crypto, for a collective total of just under $2.0 billion.
“In 2022, just 542 deposit addresses received over $1 million in illicit cryptocurrency, for a total of $6.3 billion, which was over half of all illicit value received by centralized exchanges that year. In 2023, 1,425 deposit addresses received over $1 million in illicit cryptocurrency, for a total of $6.7 billion, which accounts for just 46% of all illicit value received by exchanges for the year”.
Chain analysis observed a trend among crypto criminals diversifying their money laundering activity across more nested services or deposit addresses to better conceal it from law enforcement and exchange compliance teams.
It further disclosed that spreading the activity across more addresses may likely be a strategy to lessen the impact of any one deposit address being frozen for suspicious activity. As a result, fighting crypto crime via the targeting of money laundering infrastructure may require greater diligence and understanding of interconnectedness through on-chain activity than in the past, as the activity is more diffuse.
Another notable trend in the report is a constant change of tactics in Money laundering. The report revealed that a big share of crypto money laundering activity is relatively unsophisticated, and consists of bad actors simply sending funds directly to exchanges.
However, crypto criminals with more sophisticated on-chain laundering skill sets – such as the notorious North Korean cybercriminals associated with hacking gangs like Lazarus Group tend to utilize a greater variety of crypto services and protocols.
The report further concluded by stating that the changes in money laundering strategy 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.
It therefore posited that Law enforcement and compliance teams can be more effective by studying these new laundering methods and becoming familiar with the on-chain patterns associated with them.