Money launderers use crypto to clean stolen cash

Volumes of cryptocurrency laundering are “relatively small” compared with old-fashioned methods involving cash, a new report suggests. But loopholes risk making digital assets far more attractive for criminals.

Rather than focusing on how cyber heists take place, the research by SWIFT and BAE Systems—entitled “Follow The Money”—aimed to explore what happens to funds after they have been stolen.

Estimates suggest that attacks targeting crypto exchanges are a drop in the bucket compared with the $1.5 trillion in revenue that cybercrime generates every year. “Banks remain a prime target for cybercriminals because they are critical infrastructure that can facilitate direct access to cash/funds,” the authors wrote.

High-volume payment systems and ATM networks tend to be rich pickings for attackers, but that isn’t to suggest that cryptocurrencies don’t have a role further down the line.

Bitcoin: an enabler?

According to the report, the main challenge for criminals in the wake of a fiat cyber heist is ensuring that ill-gotten gains are clean—making it difficult to tell those assets were from the proceeds of a crime. Casinos have long been a popular method for achieving this, as compromised cash can be converted into chips and exchanged back into a cheque that can be deposited at a bank.

But the authors also found evidence of a “significant cybercrime group” converting cash obtained from ATM thefts into cryptocurrency, indicating that digital assets are being used to muddy the waters at a later stage. Their report warned:

“The raft of alternative cryptocurrencies that offer greater anonymity, as well as services like mixers and tumblers that help obscure the source of funds by blending potentially identifiable cryptocurrency funds with large amounts of other funds, could boost the appeal of cryptocurrency for nefarious purposes.”

In one case, authorities tracked down an international group that was using a Bitcoin farm to clean funds stolen from heists. Officials found 15,000 BTC (worth $152.2 million at the time of writing) at a house belonging to the group’s leader—as well as two sports cars and jewelry worth $557,000.

The report also exposes the sophisticated methods that the Lazarus Group, a hacking gang associated with North Korea’s government, used to launder funds from a crypto exchange. Ill-gotten digital assets were quickly distributed to a multitude of other trading platforms as a layering technique, with East Asian facilitators then transferring cryptocurrency across the addresses they hold to further obfuscate the origin of their funds. They then receive a cut of the proceeds as a reward for their help.

Loopholes

The report noted how crypto-focused prepaid cards have become an especially popular vehicle for cybercriminals who want to launder funds. These products can be loaded with Bitcoin, and then used for conversions into fiat currency in small amounts. The authors explained:

“This technique is enabled by a loophole, so when the original financial institution issues the card, it does so in conjunction with the card issuer’s partner—this partner company receives and converts the funds from cryptocurrency into fiat currency.”

In some cases, prepaid cards issued by financial platforms in the U.K. and Europe have been loaded with Bitcoin that is used to purchase jewelry, cars, and property. And the laundering doesn’t end here—these assets can then be sold to create an even longer trail.

Another threat lies in peer-to-peer websites that facilitate transactions for everything from tropical islands and luxury penthouses to watches and gold bars without the standard checks and processes that are normally overseen by a bank. In many cases, the only requirement for making such an exorbitant purchase is an email address.

The future

“Follow The Money” helps reinforce the fact that cash remains king when it comes to money laundering—and crypto may not be the hotbed of illicit activity that it’s often regarded to be. Nonetheless, blockchain analytics tools are continuing to become more commonplace.

Back in April, the crypto exchange and derivatives platform Huobi Group launched a new service designed to detect and prevent money laundering in the industry. At the time, an executive said: “It’s estimated that only a small percentage of cryptocurrency transactions are illicit, but any incident—regardless of size—is a stain on the entire industry.”

In January, a Chainalysis report revealed that the volumes of Bitcoin being used to buy illegal products on darknet markets had reached record highs in 2019. But even then, this only represents 0.08% of all cryptocurrency transactions.