As the crypto industry continues to expand and become mainstream, one of its most significant drawbacks, cited mainly by regulators, is its tendency to harbour evil acts and allow crime to flourish.
A persistent concern in this nascent sector is the use of cryptocurrencies by criminals to launder funds. Now, according to a report published last Wednesday by blockchain analytics platform Elliptic, crypto criminals will launder at least $10.5 billion by 2025 based on the industry’s growth and the information from previous years,
According to Interpol, money laundering is concealing or disguising the origins of illegally obtained proceeds to appear to have originated from legitimate sources. It is frequently a component of other serious crimes, such as drug trafficking, robbery or extortion.
Thanks to blockchain technology, criminals can use cryptocurrencies for their illicit crafts. This is because digital assets provide greater anonymity than other payment methods since the public keys engaging in a transaction cannot be directly linked to a particular individual.
Criminals can hide their illegal proceeds in the crypto world and launder money by sending digital assets across blockchains, bypassing a centralised service that can trace and freeze transactions. They use so-called cross-chain bridges to make it happen, and it’s becoming a pressing issue daily.
More on the report
According to the report titled ‘Following the Money in a Cross-chain World,’ Elliptic has, by 2022, “identified over $4.1 billion of illicit or high-risk crypto that has been laundered through either asset-hopping or chain-hopping, made possible by decentralized exchanges (DEXs), cross-chain bridges and coin swap services.”
Taking cognizance of this account, the platform predicts that:
“The value of illicit crypto laundered through ‘cross-chain crime’ (…) will increase nearly 60% from $4.1 billion in mid-2022 to reach $6.5 billion by 2023. That figure will more than double to $10.5 billion by 2025, with an upper estimate of almost $15 billion.”
Also, the report highlights the alarming increase in the rates of cross-chain crime, stating that “over $500 million had been laundered by 2020 through DEXs, bridges and coin swap services,” compared to $4.1 billion in July 2022.
Crypto as a money laundering tool
Crypto transactions in the blockchain network are inherently transparent and irreversible because of the availability of a public ledger. This makes crypto a perfect avenue for criminals, but the risks of money laundering and financial crime in this sector should still be considered relatively manageable.
This shows that the amount of money laundered through cryptocurrencies is significantly lower than what occurred with fiat currencies. Nonetheless, issues surrounding money laundering in cryptocurrency should not be taken with levity.
The Elliptic report says the essential action that law enforcement can take to combat cross-chain crime is to adopt blockchain analytics solutions that screen the ecosystem holistically.
“We’re referring to the next generation of blockchain analytics tools that can track the proceeds of crime, even as funds are moved across and between multiple cryptoassets and blockchains. This way, you are not just viewing multiple currencies individually or seeing separate elements layered together in aggregate — you are in fact exposing the flow of funds across all assets and blockchains concurrently. This is because you are tracing across the ecosystem as a whole to give a complete picture of criminality.”
Apart from that, more robust AML policies within the industry is a crucial solution to stopping money laundering and other related crimes. This can be done primarily by crypto service providers and platforms enforcing stricter Know Your Customer(KYC) and Enhanced Due Diligence measures.
Also, an umbrella global regulatory body for the industry would come in handy at this critical time. An agency that oversees the affairs of the sector would ensure safety to a reasonable extent.
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