Illicit actors, who are masters at using blockchain protocols and platforms, have moved stolen crypto funds between multiple blockchains, leaving law enforcement agencies struggling to follow their money trail. The inter-connected nature of blockchains has resulted in cyber criminals finding more complex ways to launder money and hide their tracks, according to a report by U.K. based blockchain analysis firm Elliptic.
(For insights on emerging themes at the intersection of technology, business and policy, subscribe to our tech newsletter Today’s Cache.)
The report noted that cybercriminals and other high-risk traders have laundered at least $4 billion in illegal crypto assets. Some platforms used for this include decentralised exchanges, which often do not insist on KYC procedures. Other illicit actors used cross-chain bridges that let assets move between blockchains. They also used loosely regulated coin swapping services. These platforms are largely based in sanctions-hit countries like Russia and Iran.
According to the data, groups that have been sanctioned by the United States, such as North Korean cybercriminals, have laundered over $1.8 billion using these tools.
“Criminals are now increasingly leveraging cross-asset and cross-chain transactions to evade legacy blockchain analytics solutions, which are not designed to trace such activity,” the report said.
Other ways in which crypto criminals evade legal authorities include turning their stolen assets into ones that cannot be easily frozen by legal authorities. For example, centralised stablecoins like Tether (USDT) and USD Coin (USDC) are converted into decentralised assets which are not as strictly regulated. Alternatively, tokens might be swapped so they can be run through ‘mixers’ like the sanctioned Tornado Cash, which conceal transaction origins by combining them with legal crypto funds.
Stolen crypto is also converted to another cryptocurrency so that it can be moved to a different blockchain via cross-chain bridges. Bridges like these pose additional risks as they not only allow stolen funds to be moved across ecosystems, but are also vulnerable to attacks that can drain legitimate users’ funds.
Elliptic stressed that cross-chain crime could lead to harsher restrictions against the crypto sector as a whole.
“The sources of these funds– which include a range of sanctioned entities, terrorist organizations, crypto heists and other serious crimes – risk harming wider innovation in the crypto space and motivating restrictive responses by more jurisdictions,” the company’s report concluded.
