It is estimated that since 2019, money laundering businesses have received an astounding $100 billion in transfers of monies from known criminal cryptocurrency wallets. This amount is just the beginning.
Even though cryptocurrency has a lot of good applications, criminals follow money wherever it goes. Despite being public and traceable, illicit money flows through the blockchain in billions, supporting anything from fraud to cybercrime gangs to terrorism.
Trends in money laundering are also changing. This change has grown to be a major issue.
To understand the shift and the new tools and methods that can be used to stop money laundering, Techopedia spoke with top blockchain specialists.
Advanced Methods for Preventing Money Laundering in Blockchain
Advanced blockchain techniques that can be utilized to produce intelligence signals for proactive lead generation and more tangible proof of illicit flows in ongoing investigations were recently described by Chainalysis in a paper.
The new methods are intended to assist a wide spectrum of analysts and investigators in dismantling the blockchain's increasingly complex money laundering networks.
As Global Crime Goes Crypto, Analysts Must ‘Adapt or Fail’
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But while the amount of illicit money passing through blockchain networks is concerning, the growing criminal network that is using this technology is much more of a worry. In addition to cybercriminals, Bitcoin has been used by drug dealers, con artists, and terrorist organizations for their illegal operations. According to Chainalysis, this change has important ramifications for detectives.
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To conceal the illicit sources of their money, money launderers employ sophisticated strategies like numerous wallet transfers, cross-chain bridges, on- and off-chain procedures, and crypto mixers.
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According to Grauer of Chainalysis, global cooperation, technology advancements, and regulatory measures are all necessary for prevention, as Techopedia reported.
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Chainalysis provides sophisticated methods that call for specific knowledge, but its resources also enable analysts of all stripes to spot and look into questionable blockchain activities.
The Path Ahead for Anti-Money Laundering and Law Enforcement Officials
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Speaking with Techopedia about the matter was Steven Deng, CTO of Portkey, a Web3 account abstraction wallet developed on the aelf layer 1 blockchain and nurtured by the aelf team.
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Deng clarified what it means for law enforcement organizations to possess blockchain intelligence expertise.
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Every piece of blockchain data is kept on-chain, as Deng clarified. This implies that all transactions are captured on record and cannot be changed.
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According to Deng, "law enforcement can identify wallet addresses that receive anomalous amounts or exhibit abnormal transaction frequencies by using data mapping tools or services."
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Wallets and unusual transactions can both be watched for questionable activity.
Read Also: Blockchain Enhances Payment vs Payment Security
A Steep But Necessary Learning Curve
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The vast quantity and complex nature of bitcoin transactions provide formidable challenges for investigators attempting to track them down.
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The fact that blockchain transactions are anonymous makes investigation more difficult. However, newer technologies with the potential to address these challenges include artificial intelligence and machine learning.
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Techopedia spoke with Grauer from Chainalysis about the learning curve that specialists in money laundering prevention must overcome.
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Financial surveillance and forensic accounting remain the cornerstones of the fight against money laundering, according to Deng. The basic method for locating these hidden monies is essentially the same, notwithstanding the growing usage of cryptocurrencies in illegal activity.
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Deng did, however, caution that expanding one's toolkit and skill set is still essential.
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Deng stated, "Law enforcement agencies can work with private sector experts to stay up-to-date with the latest blockchain technologies and tools, in addition to blockchain education and intelligence training."
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Understanding smart contracts, decentralized ledgers, and the different kinds of cryptocurrencies is essential to mastering blockchain. It's a tough hill to climb, but essential to fighting contemporary crime.
The Bottom Line
The emergence of cryptocurrencies has changed the face of financial crime and added complexity to the process of money laundering. The complexities of blockchain technology are used by criminals to conceal money that isn't authorized, therefore thwarting this threat requires sophisticated analytical skills.
For law enforcement and financial institutions to effectively tackle criminality driven by cryptocurrency, they require specific tools and training. Through comprehension of the complexities of blockchain technology and international cooperation, we can sever criminal networks and safeguard the integrity of the financial system.