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There was a notable decrease in cryptocurrency transactions linked to illicit activity in 2023, Chainalysis said in a recent report, with $22.2 billion laundered via cryptocurrencies, down 29.5% from $31.5 billion dollars from the previous year.
Crypto money laundering involves moving funds using cash mechanisms that aim to obscure its origins. Such services could include brokerage services, personal digital wallets, cryptocurrency mixers and decentralized finance (DeFi) protocols, and off-ramping fiat services such as centralized exchanges and crypto ATMs.
Chainalysis attributed the annual decline in illicit cryptocurrency activity to multiple factors, from lower cryptocurrency trading volume to new increased regulatory scrutiny. This latest development comes as US regulators have cracked down on services that cryptocurrency launderers previously relied on to obfuscate the origins of illicit funds.
In 2022, for example, the US Treasury Department sanctioned Tornado Cash, a popular cryptocurrency mixing service that allowed Ethereum (ETH-USD) users to mask their transactions, for its alleged use in money laundering virtual currency stolen by North Korean hackers. Colleague Sinbad was also reportedly sanctioned and fired in November 2023 for alleged links to the North Korean hacking group.
Thus, according to the report, funds transferred to mixers from illicit addresses almost halved from $1.0 billion in 2022 to $504.3 million in 2023. But growing regulatory pressure pushed the Lazarus Group, a of North Korean cybercriminals, to adapt their money laundering tactics, using mixers like YoMix and cross-chain bridges to evade detection.
“The growth of YoMix and its embrace by Lazarus Group is a prime example of the ability of sophisticated players to adapt and find replacement obfuscation services when previously popular ones are shut down,” the report says, noting that YoMix’s business it will increase fivefold in 2023.
In addition to bridges, the share of illicit funds going to DeFi protocols grew last year. “The inherent transparency of DeFi generally makes it a poor choice for obfuscating the movement of funds,” Chainalysis noted. In 2022, recyclers have become more reliant on centralized exchanges.
“The changes in money laundering strategy we have observed from crypto criminals like Lazarus Group serve as a reminder that more sophisticated illicit actors are always adapting their money laundering strategy and exploiting new types of crypto services,” the report states .
With the growing popularity of cryptocurrencies, which are also making their way into traditional markets, there have been many cases of cryptocurrency laundering globally. In February 2022, the US Department of Justice arrested a couple who allegedly conspired to launder $4.5 billion in cryptocurrency stolen during the 2016 hack of cryptocurrency exchange Bitfinex. That same year, a gang of 63 people were arrested by Chinese police on charges of laundering up to $1.7 billion using cryptocurrencies.
Some countries, including Japan, have already introduced new rules for money transfers to prevent the use of cryptocurrency exchanges for money laundering. In 2021, the Biden administration has reportedly sought to crack down on crimes committed by virtual currency exchanges, shuffling 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 capitalization, accounting for approximately 70% of the broader $1.95 trillion cryptocurrency market. BTC, in particular, is up more than 120% from a year ago, thanks to regulatory approval of the first US bitcoin spot exchange-traded funds and speculation about interest rate cuts. SA analysts weighed in on what could be next for BTC.