Blockchain analytics firm Chainalytic found that cryptocurrency trading volume linked to money laundering activities will decline by nearly $10 billion in 2023. Compared to the total cryptocurrency laundered volume of $31.5 billion in 2022, last year’s $22.2 billion is a 29.5% decrease.
The company also found that the value of all cryptocurrencies raised due to ransomware attacks has nearly doubled since last year. The total value received by ransomware operators in 2023 was $1.1 billion, a new record. However, the report concluded that the surge in activity was the result of major geopolitical events and did not represent an ongoing trend.
The findings come at a time when countries around the world are trying to put systems in place to prevent the use of cryptocurrencies for illegal activities. In the past, this was much more difficult due to illegal cryptocurrency services, but with the growing popularity of DeFi, things are becoming easier.
Year in Review
In its report, Chainalysis found that the decline in money laundering activity coincided with an overall decline in cryptocurrency trading volume. The decline in money laundering-related activity exceeded the decline in legitimate market activity by 14.6%.
The rise of DeFi has led to a decline in illicit services, leading to an increase in illicit funds flowing into DeFi protocols. This growth may be counterintuitive, as the added transparency of DeFi makes every transaction easier to track and much more difficult to obfuscate. Therefore, Chainalysis believes that this is not the most efficient method, but rather the growth of DeFi overall.
As in previous years, centralized exchanges continue to be the primary destination for illicit cryptocurrencies, with trading volumes nearly five times higher than DeFi. This is explained by the multiple fiat off-ramps offered by centralized exchanges, with five services being particularly attractive to malicious actors. These five unnamed services account for 71.7% of all illicit funds transferred to fiat off-ramps.
Money launderers are changing their tactics
In 2023, there are more wallets in use than ever before, despite a decline in money laundering-related transaction volumes. In 2022, only 40 exchange deposit addresses received transactions of more than $10 million each, totaling $2 billion. On the other hand, in 2023, a total of $3.4 was distributed among 109 wallets that received more than $10 million.
This trend suggests that malicious actors are “diluting” transactions at an increasing rate, using more addresses to avoid detection. Another benefit of this approach is mitigating the impact of seizures by regulators, law enforcement, and centralized platforms. This strategy has proven to be most popular among fraudsters and market vendors, who are much less focused than ransomware operators.
While most of these illicit activities are carried out by unsophisticated actors using basic tools and strategies, many are using much more advanced strategies. Cross-chain bridges and mixers have become a preferred solution for groups like North Korea’s Lazarus Group, which find services like YoMix particularly useful.
Law enforcement and compliance teams must be strengthened
Governments around the world have been scrambling to pass legislation specifically designed to regulate cryptocurrencies over the past decade. Although successful in some countries, the technical complexity and decentralized nature of cryptocurrencies make it difficult to keep up with illicit and legal uses of the technology.
In South Korea, reports of suspicious cryptocurrency transactions increased by 48.8%. This increase is partly explained by more efficient communication between law enforcement and cryptocurrency companies. Countries like Nigeria have also seen an increase in illegal activity related to cryptocurrencies over the past year, leading experts to push for cryptocurrency regulation.
According to Chainalytic, which works with several government agencies around the world, “researching these new methods of laundering” has a long way to go. The company believes that by becoming “familiar with the on-chain patterns associated with them,” regulators and enforcement agencies can become much more efficient in taking action.
However, the company believes that this record is a result of major geopolitical events, such as the Russian invasion, making these efforts more difficult and often resulting in governments imposing tighter controls on all cryptocurrency transactions.
