Illicitly obtained cryptomoney is channelled through a limited number of services that can be used to launder such funds. A godsend for the authorities, who could take advantage of this to identify the owners of the deposit addresses?
In 2020, 55% of all money laundering operations involving cryptomasks would have been carried out via only 270 deposit addresses managed by five services that receive illicit funds, according to the specialist in cryptomastics analysis Chainalysis in his recent « 2021 Crypto Crime Report ». These 55 per cent of transactions are believed to represent a total of $1.3 billion in illicit cryptography. On a smaller scale, a group of only 24 of these addresses would have received approximately $500 million in illicit cryptography.
When a cybercriminal steals or receives as illicit payment cryptography, the source of the cryptography must be obscured in order to convert it into currency. To do this, he uses a money-receiving service provider. As Chainalysis explains, these may be providers specializing in money laundering, but also more broadly, cryptomast/money service providers with rather lax compliance programs.
The level of concentration in 2020 would be greater than in 2019. In particular, the report observes a much higher share of illicit cryptography going to addresses registering between $1 million and $100 million in new cryptography per year. For Chainalysis, this dynamic reflects « the growing dependence of cybercriminals on a small group of over-the-counter brokers and other nested services specialising in money laundering ». It should be noted that OTC brokers are intermediaries that connect a buyer and a seller and that the nested services operate within one or more broader trading platforms. Examples of such nested services include itBit and Changelly, nested within the Paxos and HitBTC trading platforms.
An advantage in the fight against cybercrime
The cryptomatics analyst adds that many of the nested services « appear to be large companies for which illicit activity represents only a small share of the total transaction volume, indicating that these services are likely to transfer illicit funds due to lax compliance policies, and could continue to operate if they were to stop ». But, on the other hand, « some of these deposit addresses receive such a percentage of their illicit address funds that it seems impossible that this activity is unintentional, or that the service could even continue without serving the cybercriminals ».
Such a concentration may have an advantage in the fight against cybercrime. Indeed, the report points out that « authorities could significantly hamper the ability of cybercriminals to convert encrypted data into cash by identifying and prosecuting the owners of these deposit addresses », i.e. the nested services.
Geographically, the United States has received the largest volume of cryptography from illicit services, according to Chainalysis, who relied on the location of the users of the services receiving the funds. Next came Russia, China, South Africa and the United Kingdom. France ranks tenth.
It should be remembered that, more globally, criminal activity in cryptomoney transaction volumes fell in 2020. In 2019, it accounted for 2.1% of all transactions, or $21 billion, compared with 0.34% in 2020, or $10 billion of transaction volumes. One of the causes of this decline is that the overall economic activity of the cryptomoney industry almost tripled between 2019 and 2020.