- The process of money laundering can be discovered easily due to the transparency of the blockchain.
- Binance and Huobi are the two largest exchanges used in this activity.
- The massive size of the OTC market contributes to most of the volume of all cryptocurrencies, according to crypto data provider Kaiko.
Once a hacker manages to obtain large amounts of illegal cryptocurrency in his wallet, he attempts to convert that to cash before getting caught by enforcement agencies. The process of money laundering can be discovered easily due to the transparency of the blockchain.
Data has proved that exchanges are the most popular method used by money launderers. Big Data analysis has traced up to $2.8 billion worth illegally acquired BTC converted through exchanges. The proportion of trades has also seen a considerable rise since January 2019.
When we group these accounts into categories based on the total value of all bitcoins received, we see that only a small number of reports are very active. Within these, Illegal BTC accounts hold a lower proportion.
Despite having a few accounts, the total value of illegal funds received by these is more than $163 million in 2019.
Chain analysis has shown that most “whales” are, in fact, OTC brokers who facilitate large transactions between buyers and sellers who do not want to trade publicly.
The massive size of the OTC market contributes to most of the volume of all cryptocurrencies, according to crypto data provider Kaiko. Though most of these OTC brokers operate according to legal standards, some specialize in offering money laundering services to criminals.
They usually take advantage of their lower KYC requirements and convert BTC into a stable currency like Tether before cashing into fiat money.
Chain analysis manually identified a list of top 100 OTC brokers called Rogue 100 who obtain large amounts of crypto coins from illegal sources.
Though these are not the only brokers who provide money laundering services, chain analysis has shown that “70 OTC brokers in Rogue 100 have Huobi accounts and receive Bitcoin from illegal sources.
Among them, 32 OTC broker accounts received the most illegal bitcoin out of 810 accounts, and 20 of them received illegal bitcoin worth more than $ 1 million in 2019.”
It is also to noted that criminals often conduct large transactions with each other to reduce the risk of exposing criminal wallets to blockchain analysis software, and a large percentage of all BTC transactions receive illegal funds from OTC brokers.
If the crypto community can control cashing out of bitcoin facilitated by OTC brokers, it can also reduce motivation for almost all other types of crime under the Crypto Crime Report.
Not only will this reduce the number of victims, but it will also help in increasing the reputation of cryptocurrency for increased adoption. Transparency is an essential tool of blockchain against money laundering.
If we can analyze transaction records on the blockchain, we will be able to gain insight into the process of money laundering faster and therefore help Law enforcement agencies and regulators to combat money laundering better.
Another step could be to call on exchanges to conduct checks and due diligence on OTC brokers using their platforms.