Criminal bitcoin payments flows to unregulated exchanges says report

October 10, 2018
Chris Wheal

Hackers stole $927m of cryptocurrency in the first three quarters of 2018 and most of the loot is flowing to unregulated exchanges according to a new report released Wednesday by US-based intelligence research company, CipherTrace.

The anti-money laundering report quantified that 97% of direct bitcoin payments from identifiable criminal sources were received by unregulated cryptocurrency exchanges.

Further, the report said 36 times more criminal bitcoin (based on 380,155 bitcoins received by cryptocurrency exchanges directly from criminal sources between January 9, 2009 and September 20, 2018) was received by crypto exchanges in countries where anti-money laundering laws were “either lax or lacking”.

CipherTrace analysed 45 million transactions at the top 20 cryptocurrency exchanges globally and says the research is the first major quantitative effort to measure criminal bitcoin payments. The figure of $927m in stolen cryptocurrency represents a hike in thefts and calls it a “major problem”.

The Q2 Cryptocurrency Anti-Money Laundering Report, showed a three-fold increase in cryptocurrency thefts during the first half of 2018 compared with the entire year of 2017 and included notorious events such as the $530m in tokens stolen from Coincheck in Japan and BitGrail’s $195m.

Transactions were identified as criminal if they came directly from a “criminal source” described as dark market site, extortion, malware, mixer/tumbler/money laundering site, ransomware, and terrorist financing up to the 29 September 2018.

Making dirty bitcoin clean

CipherTrace warns that “money laundering activity using cryptocurrencies is directly correlated to AML regulations and their enforcement on exchanges”.

In countries with weak AML regulations, cryptocurrency exchanges received close to 5% of their payments directly from criminal sources. Top exchanges, then laundered around$2.5bn in bitcoin valued at current prices.

Laundering cryptocurrencies, according to the report, involves sending dirty bitcoins to exchanges located in those countries with weak regulation and other services rendering it “clean” before moving it into the global financial payments.

The strongest deterrent to this activity, concludes CipherTrace, is stronger anti-money laundering regulation and writes: “Since criminals use the funds to finance illicit activity — such as international drug gangs that use the laundered funds to produce and distribute more illegal substances — the benefits of well-enforced AML regimes to society are obvious.”

Post written by Chris Wheal
Chris Wheal is editor of OpenLedger's news and features service. An award-wining business journalists himself, he runs a team of freelance journalists from across the UK and north America.

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