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A notable decrease in cryptocurrency transactions linked to illicit activities took hold in 2023, Chainalysis said in a recent report, with $22.2B laundered through crypto, down 29.5% from $31.5B a year earlier.
Crypto-money laundering involves moving funds into cash using mechanisms that are intended to obscure their origins. Such services could include intermediary services, personal digital wallets, crypto mixers and decentralized finance (DeFi) protocols, and fiat off-ramping services like centralized exchanges and crypto ATMs.
Chainalysis attributed the Y/Y drop in illicit crypto activity to multiple factors, from lower crypto trading volume to new increased regulatory scrutiny. The latter development comes as U.S. regulators have cracked down on services that crypto launderers previously relied on to obfuscate the origins of illicit funds.
In 2022, for example, the U.S. Treasury Department sanctioned Tornado Cash, a popular crypto mixing service that allowed ethereum (ETH-USD) users to mask their transactions, over its alleged use in laundering virtual currency stolen by North Korean hackers. Fellow mixer Sinbad was also reportedly sanctioned and shuttered in November 2023 for alleged links to North Korea’s hacking group.
As such, funds transferred to mixers from illicit addresses nearly halved to $504.3M in 2023 from $1.0B in 2022, according to the report. But increased regulatory pressure has prompted the Lazarus Group, a group of North Korean cybercriminals, to adapt its money laundering tactics, utilizing mixers like YoMix and cross-chain bridges ultimately to evade detection.
“The growth of YoMix and its embrace by Lazarus Group is a prime example of sophisticated actors’ ability to adapt and find replacement obfuscation services when previously popular ones are shut down,” the report said, noting that YoMix’s activity jumped fivefold in 2023.
In addition to bridges, the share of illicit funds going to DeFi protocols grew last year. “DeFi’s inherent transparency generally makes it a poor choice for obfuscating the movement of funds,” Chainalysis noted. In 2022, launderers relied more heavily on centralized exchanges.
“The changes in money laundering strategy we’ve seen from crypto criminals like Lazarus Group serve as an important reminder that the most sophisticated illicit actors are always adapting their money laundering strategy and exploiting new kinds of crypto service,” the report said.
With crypto getting increasingly popular, and also making its way to traditional markets, there have been many crypto laundering cases globally. In February 2022, the U.S. Justice Department arrested a couple who allegedly conspired to launder $4.5B of crypto stolen during the 2016 hack of crypto exchange Bitfinex. Later that year, a gang of 63 people were arrested by Chinese police for allegedly laundering as much as $1.7B using crypto.
Some countries have already introduced new rules for money transfers to stave off the use of crypto exchanges for money laundering, including Japan. In 2021, the Biden administration reportedly sought to crack down on crimes committed by virtual currency exchanges, mixing and tumbling services, and bad actors who facilitate money laundering.
Bitcoin (BTC-USD) and ether (ETH-USD) are the two largest digital tokens by market cap, accounting for roughly 70% of the broader $1.95T crypto market. BTC, in particular, has surged over 120% from a year ago, thanks to the regulatory approval of the first U.S. spot bitcoin exchange-traded funds as well as speculation around interest-rate cuts. SA analysts weighed in on what could be next for BTC.
