A new report has found that criminals who use cryptocurrency launder their funds through a small number of online services.
Chainalysis Inc., which last month said only 0.34% of cryptocurrency is traded for illicit purposes, found last week that the actual number of those undertaking illicit transactions is also remarkably small.
Describing money laundering as “highly concentrated,” Chainalysis found that just 1,867 deposit addresses received 75% of all cryptocurrency value sent from illicit addresses in 2020. A smaller group of 270 addresses collectively received 55% of transactions from illicit addresses for a total of $1.3 billion. Of the 270, a smaller group again of just 24 received over $500 million in cryptocurrency in the year.
The numbers get more interesting yet. 55% of all illicit cryptocurrency funds were found to be deposited into just five exchange services. The report does not name the services, but it does call out “nested services” including itBit, nested at Paxos, and Changelly nested at HitBTC, as notable sources of money laundering exchange activity.
Nested service providers operate by setting up accounts on major cryptocurrency exchanges, then act as a middleman of sorts in facilitating transactions. As Giles Dixon noted, it’s analogous to hotel booking websites that aggregate hotel room rates and offer them under one platform. In the cases here, the nested provider masks illicit activity within the overall pool of transactions from the parent exchange, Decrypt wrote.
“We believe the growing concentration of deposit addresses receiving illicit cryptocurrency reflects cybercriminals’ increasing reliance on a small group of OTC brokers and other nested services specializing in money laundering,” Chainalysis noted. “A significant share of money laundering in cryptocurrency isn’t flying under the radar at big services who can’t sift through transactions to spot it, but is being actively facilitated by nested services for whom money laundering is a key part of the business model.”
Chainalysis added that “law enforcement could significantly hamper cybercriminals’ ability to convert cryptocurrency into cash by identifying and prosecuting the owners of these deposit addresses.”
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