Financial crime compliance company Elliptic has released "The State of Cross-Chain Crime" report (the Report) focusing on crypto laundering and exploring the evolution and adaption of crypto-related crimes across the globe.
The Report sheds light on the intricate web of cross-chain crimes, revealing that $7 billion is entwined in crypto laundering activities. Cross-chain bridges and coin swap services are used to obfuscate billions of dollars and some of the most prolific launderers are hackers, dark web markets, online gambling platforms, illicit virtual asset services and coin swap services.
The Report discusses how blockchain technology, renowned for its decentralised and immutable nature, is being exploited by criminals to orchestrate large-scale crypto laundering. Specifically, how the perpetrators, undeterred by the traceability of blockchain, have devised tactics to maneuver across chains to launder money and how legacy blockchain analytics solutions do not have the capabilities to trace them.
According to the Report, the following is a list of the origin of Illicit crypto that has been laundered through decentralised exchanges, cross-chain bridges and coin swap services:
Thefts ($1.1 billion);
Tornado Cash, pre-sanction ($972.7 million);
Dark Web Services and Markets ($510.6 million);
Suspected North Korean Heists ($351.2 million); and
Scams and Ponzi Schemes ($296.4 million).
The vast majority of the funds obtained through theft, Tornado Cash, suspected North Korean Heists and scams and Ponzi schemes use decentralised exchanges to launder money, while dark web services and markets prefer coin swap services.
A lack of robust crypto regulation allows criminals to circumnavigate certain measures designed to prevent hacking success. For example, freezing assets is a tactic employed by exchanges to prevent assets being accessed by hackers. To counteract this, some hackers who steal USDT or USDC typically swap these to decentralised stablecoins to evade this risk.
While action has been taken against Tornado Cash, the other main sources of illegally obtained crypto remain without a united regulatory approach. The preventable loss is underscored by a need for fit-for-purpose cross-border legislation and policy that targets criminals who abuse and/or make available decentralised exchanges and coin swap services to launder ill-got crypto.
The Report ends with an optimistic outlook and discusses how multi-asset screening, cross-asset tracing and cross-chain tracing are measures that are being implemented to counteract the laundering of funds on exchanges and through swapping services.
While the United States contends with the SBF trial, and Hong Kong's Securities and Futures Commission battles its evolving virtual asset marketplace, there is a global threat to Web3 that is underscored by the desperate need for robust legislation that protects consumers and reduces crime.
By Tim Masters and Luke Misthos