by Charbel Farhat June 12, 2021

Money laundry, has been a part of our economic societies for as long as one may care to recall the term itself dates to the early 20th century when the Italians used laundromats to provide an inconspicuous and seemingly legal facade to criminal money ever since, the act of money laundering, has evolved just as quickly as if not quicker than the laws meant to curb it.

It is therefore no surprise that with the digitalization of commerce money laundering has entered the murky waters of cyberspace. As well over the past few years, the prevalence of using cryptocurrency as a means for laundering money has seen an exponentially upwards trend. Its illicit usage having grown from a means to blanket darknet crime has become a staple in cybercrime of all magnitudes.

Consider North Korea among the most notable entities infamous for its institutionalized cybercrime and among its recent infamous highs are types of warping $81 million in cash and $250 million in cryptocurrency according to some estimates nearly 10% of hermit kingdom’s income comes from cybercrime, as well in 2018 criminal entities moved $1 billion in Bitcoin and that raised to two point $8 billion in 2019.

There’s a lot of movement going on in the crypto world but how do they manage to pull it off?

These are after all crimes of international magnitude you would expect the rest of the world’s capabilities to determine the actions of a single isolated wrong tour. The answer is simple : make your money transfers so sophisticated that the complexity of tracking it eventually exceeds the time and resources available to do so since most of the cryptocurrency market is not governed by a central body.

It’s relatively easier to provide security to transactions or what are crypto currency exchange couple days with the anonymity of crypto transfers and you have yourselves a formidable laundromat to clean all your dirty money a cryptocurrency exchange is backed by blockchain technology which is essentially a digital record of transactions that is duplicated and distributed across an entire network of users so as a result such transactions are controlled by the users themselves, without the involvement of any third parties.

Although it’s nearly impossible to find out the identity of a particular crypto wallet owner the transaction history with records of senders and recipients account date time and payment amount is available to all network participants criminals use a variety of methods with a diversity of complexities to dilute the credibility of such records the simplest method also known as appeal chain transfers money in rapid and automated transactions from one Bitcoin wallet to another through several thousand intermittent transactions this not only hides the origin of money but also reduces the risk of setting off any alarms another classic method to launder money is to manually makes transactions criminals.

Using this method generally send funds through several wallets of different users an next legitimate crypto cash with illegal money 3rd and perhaps the most popular method is called chain hopping in a manner similar to using appeal chain this method involves the movement of money from one bullet to another.

However, the difference here is that the money is transferred through several different cryptocurrencies and log chains to get it away from Bitcoin and into other more anonymous cryptocurrencies.

The idea is to make an investigator lose track of transactions and when their attention is off the chain of transactions to convert it back to Bitcoin as liquefiable currency.

North Korea’s allegedly state funded cybercrime group uses chain hopping to get its hands on stolen money by bouncing crypto cash from currency to currency and finally to a Bitcoin broker in China they managed to convert $250 million of stolen crypto into clean money without being detected in real time however with the advancements in blockchain surveillance methods.

Laundering money via cryptocurrency is no longer as easy as it sounds also please and regulators may once have been clueless but they now have years of cryptocurrency investigation experience under their belts which has made detecting suspicious patterns in crypto exchange significantly easier and faster.

However the main hurdle is the cash itself no matter how complex the transaction system is at the end the money has to go through a broker so authorities can follow a complex and convoluted transaction chain origin to his destination, which is often a broker who converts Bitcoin two real money since these money exchanges are more identifiable and fewer in number than the millions of crypto transactions it becomes possible for authorities to retrace a chain of transactions from here in the end it becomes only a matter of time before the culprit is found in regulated jurisdictions like the US Japan and European Union exchanges are already required to verify the identities of the users which makes it a lot harder to launder money that said there still exist some anonymized crypto currencies, which facilitate undetected transfers of money and they are here to stay with the darknet not going anywhere anytime soon there will perhaps always be a need for concealable exchange of money and where there’s demand there’s always a supply .

References:

• Chohan, U.W., 2018. The problems of cryptocurrency thefts and exchange shutdowns. Available at SSRN 3131702

• Madey, Robert Stanley. A study of the history of cryptocurrency and associated risks and threats. Diss. Utica College, 2017

• Seo, J., Park, M., Oh, H. and Lee, K., 2018, October. Money laundering in the bitcoin network: Perspective of mixing services. In 2018 International Conference on Information and Communication Technology Convergence (ICTC) (pp. 1403-1405). IEEE.

• Haffke, L., Fromberger, M. and Zimmermann, P., 2019. Cryptocurrencies and anti-money laundering: the shortcomings of the fifth AML Directive (EU) and how to address them. Journal of Banking Regulation, pp.1-14.

• Grujić, M. and Šikman, M., 2020. CERTAIN MANIFESTATION FORMS AND PROVING MONEY LAUNDERING IN THE EMERGING MARKET. Acta Economica, 18(32), pp.175-201.

Charbel Farhat L.L.M

Anti Money Laundry, Governance and Reporting

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