Cybercrime awareness Cryptocurrencies Money Laundering

What Cryptocurrencies Cybercriminals Use for Money Laundering Practices

By PRODAFT Team on October 16, 2023

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Introduction

With the rise of crypto, there’s also been an increase in cyber criminal activities. In fact, it has become easier for cybercriminals to trap customers and businesses in different frauds and money laundering. Of course, cryptocurrencies have come a long way, but the fact is that it lacks central authority.

It means cryptocurrencies are exchanged independently and involve minimal supervision through cryptocurrency exchange platforms. The major highlight of cryptocurrency is that it offers maximum anonymity, which used to be unheard of in the school financial system. This, in turn, has attracted a lot of cybercriminals to launder money from illegal activities.

Crypto Money Laundering

Chainalysis, a major blockchain analysis company, highlights in an extensive report that illegal addresses sent cryptocurrency that amounted to over 23 billion in 2022. What’s startling is that this represented a bump of more than 68% from 2021.

The dark net is a vast marketplace where many cybercriminals provide crypto-based money laundering services. In fact, businesses and state actors are often surprised to find out that cybercriminals have so many means to launder crypto money.

For instance, on-chain laundering mixers allow criminals to turn cryptocurrency from illegal origin. Cybercriminals do this by obscuring blockchain transactions and masking the viewing to commit the crime.

Crypto and Money Laundering: How Does It Work

Criminals use multiple services and tactics to channel their illegal funds to various businesses. At its core, the objective of cybercriminals is to conceal the origin of their payments.

What’s more is that assets are moved from an illegitimate source to an exchange or address that cybercriminals want to convert into cash. This entire process makes it difficult to trace funds back to their source.

Here are the most common crypto scams that criminals take advantage of to launder funds:

Offshore Transactions

Criminals use offshore accounts to mask the origin of their funds.

Mixing

Criminals use mixer services to conceal the history of their crypto transactions. This involves combining the cryptocurrencies of various users.

Smurfing

Surfing involves criminals splitting large amounts into small amounts sent through different transactions.

Fiat Exchanges

Fiat exchanges help criminals convert their cryptocurrency into cash. It revolves around peer-to-peer to even compliant platforms where cash conversions become possible for criminals.

High-risk Services

These services revolve around areas that are flagged for potential Anti-Money Laundering or Combating the Financing of Terrorism systems. You may have heard of these system services as AML and CFT.

Exchange Hopping

Criminals usually use more than one crypto exchange so that they can transfer funds to another platform. This makes it difficult to trace the funds.

Nested Services

These services are part of the exchanges that allow criminals to take advantage of hosted addresses in order to get access to liquidity. And soon enough, criminals start to launder money in exchanges.

Gambling Platforms

Crypto money launderers have a thing for gambling on platforms. In fact, these money launderers use a combination of anonymous and identifiable accounts so they can deposit funds. The intention of these cybercriminals is to cash out these deposited funds or utilize them in coordinated and affiliated bets.

Privacy-based Cryptocurrencies

There are blockchains that use advanced crypto techniques to mask transaction addresses, total sums, and other related information.

What Cryptocurrencies and Crypto Services Cybercriminals Use to Launder Money

Cybercriminals utilize various cryptocurrencies so they can launder money and conceal their tracks.

Let’s look at the most common cryptocurrencies that cybercriminals use and exploit:

~ Zero-trust Coins

XMR, DASH, and ZEC are cryptocurrencies that provide heightened anonymity and privacy. And you guessed it – cybercriminals use these coins to launder their funds. Cybercriminals understand that these coins utilize various tactics that make it pretty much impossible to identify users and track transactions.

~ Bitcoin (BTC)

Bitcoin is undoubtedly the most famous cryptocurrency and still has a reputation to be a favorite among cybercriminals. But it would also be fair to mention that BTC has, in fact, become difficult for cybercriminals to exploit and launder money. And that’s because there’s a lot of law enforcement scrutiny and mass popularity around BTC.

~ CoinJoin Networks

These are also a kind of crypto mixing-based services that enable users to pair their cryptocurrency transactions to preserve their privacy. For instance, cybercriminals use CoinJoin’s Wasabi Wallet to exploit mixing services.

~ Cryptocurrency Tumblers

These are essentially services that match and combine crypto transactions so that it is even more challenging for legal authorities to trace. Cybercriminals leverage crypto tumblers quite often to launder money and conceal the funds’ sources.

What Else?

Just like cryptocurrencies, the cunning cybercriminals exploit other tactics to launder money:

Fake Businesses

That’s right—cybercriminals come up with fake businesses so they can launder their funds. For instance, cybercriminals often create an online store that's fake and use it as a cover to sell fake or stolen items. After all, cybercriminals launder the sale proceeds via cryptocurrency.

Identity Theft

Cybercriminals are getting dangerously sinister at stealing and exploiting people’s identities. This allows cybercriminals to set up new crypto exchanges or bank accounts, pretending to be the person whose identity was stolen. Next, cybercriminals use these exchange accounts so they can launder their black money.

It’s More than Just About Stealing Cryptocurrencies

Nowadays, it’s not enough for cybercriminals to steal cryptocurrencies. In fact, cybercriminals understand the value and popularity of crypto and make every effort to steal it from victims. This becomes even more difficult to trace because cybercriminals sell stolen crypto and do not worry about getting detected. Cybercriminals even monetize their stolen funds and use other tactics like phishing and cryptojacking.

To Sum Things Up

From the 2010s onward, there has been a gradual rise of cryptocurrencies where European and North American lawmakers continue to devise legal frameworks to mitigate common money laundering issues. Remember, there are currently many crypto-based exchange companies. This sheer number makes it difficult for European and North American institutions to implement solid legislation for crypto-related fraud activities.