Money laundering

The authors of the report also paid attention to the laundering of illegally obtained funds, noting that cryptocurrencies in this aspect have a lot in common with traditional money.

In particular, in the process of money laundering, they all have three main stages:

1) Placing criminal money in the financial system

2) Entanglement of traces

3) Integration of funds into the real economy

As shown in the graph below, the majority of illegally obtained funds in 2018 passed through traditional centralized exchanges (64.3) and p2p exchanges (11.9%). The remaining part (23.8%) was accounted for by other conversion services – mixers, bitcoin ATMs and gambling sites.

Researchers, however, admit that this analysis addresses only part of the problem.

According to them, a significant part of illegally obtained cryptocurrencies is laundered off–chain – for example, when they are used for international payments by drug cartels. To track these flows, special software is needed that complements the already known analytical tools. Such software, for example, can identify unusual transaction activity (frequency and size), usually associated with trail entanglement.

The authors of the report are also convinced that the role of cryptocurrencies in money laundering will continue to grow with regulatory changes and the general situation on the market. Nevertheless, it is becoming easier to track transactions, and coupled with the growing requirements for compliance with the “know your customer” (KYC) policy, this means that cryptocurrencies are not some special method of money laundering for criminal organizations, although their use by small players like drug dealers continues to bother law enforcement agencies.

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