Cryptocurrency-based crime hit a new all-time high in 2021, with illicit addresses receiving US$14 billion over the course of the year, up from US$7.8 billion in 2020 according to blockchain analysis firm Chainalysis.
Evidence suggests that cryptocurrencies have been and will be used in trade-based financial crimes.
But data released by Chainalysis shows illicit transaction activity reached an all-time low in share of all cryptocurrency activity, perhaps indicating that blockchain systems may provide better protection against criminal financial flows than conventional financing channels. Or it could be that further analysis of data may reveal a higher volume of illicit cryptocurrency transactions than the blockchain analysis firm is currently reporting.
Crypto in TBML
The US Drug Enforcement Administration (DEA) has said that the best known cryptocurrency, bitcoin, is being used to facilitate trade-based money laundering (TBML) schemes while Dutch investigators have said they are looking for cryptocurrency flows in their TBML investigations (Trade-based Financial Crime, 21 January 2021).
Th DEA says many China-based firms manufacturing goods used in TBML schemes now prefer to accept bitcoin. The cryptocurrency is widely popular in China because it can be used to anonymously transfer value overseas, circumventing China’s capital controls.
Chainalysis’ data indicates that despite the massive increase in the volume of cryptocurrency-based crime, transactions involving illicit addresses represented just 0.15 per cent of cryptocurrency transaction volume in 2021 compared with 0.62 per cent in 2020 and 3.37 per cent in 2019.
The shrinking percentage appears to be partly due to the massive overall increase in cryptocurrency use. Across all cryptocurrencies tracked by Chainalysis, total transaction volume grew to US$15.8 trillion in 2021, up 567 per cent from 2020’s total.
Revised data warning
Chainalysis raises an additional caveat. It says its figure is likely to rise as the firm identifies more addresses associated with illicit activity and incorporates their transaction activity into its historical volumes.
In its last crypto crime report Chainalysis found that 0.34 per cent of 2020’s cryptocurrency transaction volume was associated with illicit activity but it has now raised that figure to 0.62 per cent.
The firm summarises that the yearly trends suggest that with the exception of 2019 — an extreme outlier year for cryptocurrency-based crime largely due to a massive crypto Ponzi scheme – crypto crime on the rise but it is becoming a smaller and smaller part of the cryptocurrency ecosystem.
Chainalysis also says law enforcement’s ability to combat cryptocurrency-based crime is evolving and cites several enforcement actions taken in 2021. The US’ Commodity Futures Trading Commission filed charges against several investment scams while the US treasury department’s Office of Foreign Assets Control (OFAC) sanctioned of Suex and Chatex, two Russia-based cryptocurrency services allegedly heavily involved in money laundering.
Chainalysis has released preliminary data on its analysis of illicit cryptocurrency transactions on a blog ahead of releasing its full 2022 Crypto Crime Report in February. The blog and an option to sign up for the full report when it comes out next month can be found here.
Categories: Trade Based Financial crimes News