Nearly $100 billion worth of crypto has been laundered from illicit wallets to conversion services over the last five years, but the majority of these funds reportedly end up at crypto exchanges.
A report from Chainalysis on money laundering in the crypto industry found that 50% of illicit crypto funds end up at centralized exchanges, either directly or indirectly after obfuscation techniques.
These obfuscation methods include crypto mixers like Tornado Cash, which has notably seen higher growth over the last year, despite a slowdown in usage following sanctions from the U.S. Treasury’s OFAC.
Blockchain bridges were also a popular tool for malicious actors looking to hide the origin of stolen funds. Chainalysis found s significant surge in illicit funds moved across bridges that began in late 2023, with an estimated $234 million illicit inflows record in January 2023 – most of these funds stemmed from Tornado Cash.
Regardless of the laundering process beforehand, the fact that more than half of these illicit funds end up crypto exchanges is still a point of concern as centralized exchanges face the pressure of new regulatory regimes cracking down on the cause.
“Illicit actors might turn to centralized exchanges for laundering due to their high liquidity, ease of converting cryptocurrency to fiat, and integrations with traditional financial services that help blend illicit funds with legitimate activities,” said Chainalysis.
While at least $1 million worth of illicit funds flows into hundreds of centralized exchanges in a given year, it is worth noting that this figure is down significantly from the $2 billion per month that was recorded at its peak – a sign that AML programs are having some degree of success.
“The growing ubiquity of crypto has made it a tool for laundering proceeds from various off-chain crimes, such as narcotics trafficking and fraud,” said Chainalysis.
“In 2024, money laundering in crypto encompasses all crime — not just that which is inherently tied to the crypto ecosystem.”
