Cryptocurrency, a new haven for money laundering

Given the increasing number of people using virtual currencies around the globe as an investment tool and a means for purchasing things, the world of cryptocurrencies can no longer be considered the future of just a select few. Similarly, for some time now, cybercriminals have exploited these currencies as an innovative way to launder the proceeds of other illegal activities.

“The dramatic rise in cybercrime over recent years, largely financial scams, has led to a situation whereby cybercriminals are once again looking for systems that enable such vast amounts of money to be made untraceable. Consequently, what better formula for them than do it through decentralized services based on cryptocurrency?,” explains Herve Lambert, Global Consumer Operations Manager at Panda Security.

According to a report from Chainalysis, during the last year, $8,600 million has been laundered by criminals in cryptocurrencies. “An increasing trend,” underlines Lambert, though the highest annual figure was $10,900 million in 2019. Since 2020, cryptocriminals  have laundered $540 million using the RenBridge service for wrapping digital assets on blockchains.

How does money laundering with cryptocurrencies work?

The most innovative system, and the method of choice lately for criminals, is through the use of RenBridge software. Users, in this case the cybercriminals, are able to send tokens, or digital assets, from one chain to another. These digital currency transfers are made through Darknodes, networks of thousands of pseudonymous validators. “These are untraceable systems, without any centralized entity and on which there is none of the regulation that there is with crypto exchanges,” explains Herve Lambert, Global Consumer Operations Manager at Panda Security.

Basically, money laundering with cryptocurrencies can use three processes:

1. Placement: This is where an amount of money generated through a criminal activity enters the financial system, via the exchange of cryptocurrencies.
2. Stratification: Cybercriminals use seemingly legitimate business addresses to forward assets to an anonymous address.
3. Integration: The money enters the economy as a legal asset. This is where the over-the-counter (OTC) cryptocurrency traders come in, who, in exchange for a commission, act as a middleman between the two parties in the sale or exchange of cryptocurrencies, or between cryptocurrency and fiduciary money.

What types of crimes are the source of the laundered money?

• Offline crimes: One of the major sources of revenue for organized crimes is drugs. Traffickers convert the income from their offline activities into cryptocurrencies to legitimize their assets. The operation is carried out in the same way as any other crime, but once the cash has been obtained, it is then transferred to someone who buys Bitcoins or another type of cryptocurrency which ends up in the criminal group’s digital wallet.
• Online crime: This refers to all crimes committed within the digital environment and, in particular, ransomware attacks on companies, theft of banking credentials, and online fraud through social engineering techniques combined with more ‘traditional’ scams such as phishing. The difference between these and offline crimes is that, in this case, cybercriminals are paid in cryptocurrencies and they use them in the same systems as law-abiding citizens to exchange money and make transactions and purchases across DeFi, the cryptocurrency equivalent to the traditional banking system. “Hackers usually keep one step ahead, and this new environment, which is still a mystery for most people, gives them an advantage over governments and the rest of the population,” says Lambert.
• Cryptocrime: This refers to the theft of cryptocurrencies from online exchanges. Hackers keep track of the increasing number of cryptocurrency transactions in order to steal from these exchanges. Last year, the Lazurs Group of North Korean hackers managed to hack two cryptocurrency exchanges with a value of around $30 million and which they laundered through over-the-counter (OTC) cryptocurrency traders.

Types of cryptocurrency money laundering

1. Real estate purchases. “What is really interesting about cryptocurrencies is that the money becomes so hard to trace,” explains Herve Lambert, Global Consumer Operations Manager at Panda Security. The transformation of cash into Bitcoins or other digital assets enables the criminals to engage in other transactions, such as the purchase not only of other digital assets, but also material assets such as properties. “This turns illegal profits into legitimate assets,” underlines Lambert.
2. Operating on online gambling platforms. Cryptocriminals also launder assets through wagers on gambling platforms. Once the money has been deposited in the gambling account, just as with real estate, it becomes legitimized.
3. Mixers. These services are used to further increase anonymity and to impede the tracing of funds before they are transferred across other types of financial exchanges. They are platforms where it is possible to mix cryptocurrencies from different user addresses before transferring them to new target wallets.

“Decentralized cryptonodes have become the new tax havens for cybercriminals, which not only protect the criminal activities of cybercriminals, but can also disrupt the stability of financial markets,” says Herve Lambert, Global Consumer Operations Manager at Panda Security”.