Crypto Crime Vs. Financial Freedom

Amy Ishlan
March 28, 2024

Chainalysis reports that 2023 was a year of recovery for cryptocurrencies, with the whole FTX scandal in the rearview mirror.

Inputs that matter: In 2023, illicit cryptocurrency addresses received a significant drop in value, totaling $24.2 billion.

  • "Crypto scamming and hacking revenue both fell significantly in 2023, with total illicit revenue for each down 29.2% and 54.3% respectively."
  • Sanctioned entities and jurisdictions together accounted for a combined $14.9 billion transaction volume in 2023, representing 61.5% of all illicit transaction volume measured by Chainalysis.

The opportunity: Cryptocurrency is used by countries and individuals to circumvent government sanctions.

  • The U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) sanctioned Russia-based exchange Garantex for facilitating money laundering on behalf of ransomware attackers.
  • The Center For Strategic & International Studies (CSIS) reports, "Iran and North Korea have used cryptocurrencies to circumvent U.S. sanctions in direct and indirect ways: paying for imports and making up for their revenues lost due to sanctions."

Zoom in: According to Decrypt, crypto exchange KuCoin and founders Chun Gan and Ke Tang are charged with violating the Bank Secrecy Act by not operating a compliant anti-money laundering program.

  • The founders, both Chinese citizens, remain at large.
  • The United States Department of Justice (DOJ) alleges that the pair enabled money laundering and terrorist activity to funnel through the exchange.

Between the lines: Know Your Customer (KYC) is a set of guidelines that financial institutions and companies must follow in the U.S. to limit money laundering opportunities.

  • Dow Jones explains, "At the minimum, firms must pull four pieces of identifying information about a client, including name, date of birth, address, and identification number."
  • If a customer is believed to pose a risk, firms take extra steps to understand their motivations better.
  • Even someone living in a high-risk country can raise a red flag for compliance.

Follow the money: In August of 2022, the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) sanctioned virtual currency mixer Tornado Cash, which has been used to launder more than $7 billion worth of virtual currency since its creation in 2019.

  • This includes over $455 million stolen by the Lazarus Group, a Democratic People's Republic of Korea (DPRK) state-sponsored hacking group that was sanctioned by the U.S. in 2019.
  • "Bitcoin and other cryptocurrencies are increasingly being used by organized criminals to disguise and transfer assets, so that fraudsters may enjoy the benefits of their criminal conduct," explains Chief Crown Prosecutor Andrew Penhale to Cointelegraph.

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