More than half of global criminal gains end up at crypto exchanges, says report
Sign up now: Get ST's newsletters delivered to your inbox
The illicit funds arrive at these exchanges either directly or indirectly, after the criminals use different methods to cover up the asset trail.
PHOTO: ST FILE
Follow topic:
SINGAPORE - More than half of global illicit funds from crimes end up at centralised cryptocurrency exchanges, said a report by blockchain analysis firm Chainalysis.
The illicit funds arrive at these exchanges either directly or indirectly, after the criminals use different methods to cover up asset trails, it added.
Criminals turn to centralised exchanges because of the high liquidity and ease of converting cryptocurrencies into fiat, said the report on trends in money laundering in the crypto world released on July 11.
It said these exchanges are integrated into traditional financial services and can help blend illegal funds with legitimate activities.
“There are currently hundreds of centralised services in any given year that receive over US$1 million in illicit funds,” said Chainalysis.
It added that there has been a notable downtrend in the volume received by these exchanges, from nearly US$2 billion (S$2.69 billion) a month at the peak, to about US$780 million a month.
This downward trend reflects better efficiency in anti-money laundering programmes of centralised exchanges in detecting and mitigating such activity, the report noted.
While bad actors use different ways to cash out, the report said there is a high concentration of illicit funds flowing to just five centralised exchanges. These illicit funds are from darknet markets, fraud shops and malware.
The report found that stablecoins now account for the majority of all illicit transaction volume, due to the rise in their use.
This is because both good and bad actors often prefer to hold funds in an asset with a value that will not change based on swings in the market.
However, using stablecoins also adds an element of risk for launderers, as stablecoin issuers have the ability to freeze funds.
Most stablecoins, such as Tether or USDT, and USD Coin or USDC, are issued by centralised entities that have the authority to control and manage their smart contracts.
This means the issuers can proactively monitor transactions for suspicious activity and freeze funds when necessary.
“For instance, both Tether (USDT) and Circle (USDC) have previously indicated that they have frozen addresses associated with illicit activities,” Chainalysis said, adding that Tether has frozen an estimated 1,600 addresses holding funds worth approximately 1.5 billion USDT.
It added that global cooperation is critical in the fight against money laundering.
Criminals often exploit regulatory gaps between jurisdictions, making coordinated international efforts absolutely essential, it said, adding that this includes harmonising regulations, sharing intelligence and conducting joint operations.
Collaboration between the public and private sectors to share information and best practices for combating money laundering should also be encouraged, it added.
