The debate over money laundering through blockchain and cryptocurrencies

Charlie Taylor

One of the most attractive features of cryptocurrencies is their ease in storing and carrying out transactions, when compared to traditional means. It is possible, for example, to save and trade them relatively anonymously, without the need to register to start using wallets and blockchains. They also simplify international negotiations, providing faster, cheaper and much less bureaucratic transactions. However, once created, the use of a new technology is beyond the control of its initial intention, and can be used for both good and evil. And the same features, so extolled by cryptocurrency advocates, are enjoyed by those who engage in criminal activities. Cryptocurrencies are commonly used in the illicit market as a form of payment for illegal activities and products. Another common criminal modality is the action of hackers, who tend to steal cryptocurrencies or demand ransoms, after blocking or rendering digital systems unusable through ransomware. According to a report by Chainalysis, in 2020 alone, US$ 5 billion were received illegally by entities around the world, and they were responsible for transferring another US$ 5 billion ahead. This movement represents 1% of the total movement of cryptocurrencies in the year . In fact, there was a drop compared to 2019, a year in which this volume was slightly above US$ 10 billion. In contrast, instances of ransomware crimes increased by 311%, representing 7% of illegal activities involving cryptocurrencies. After illegally obtaining funds, these criminals need to convert the virtual money into fiat currency. It is at this time that large money laundering businesses are established. In this article, we'll present a summary of the current clash between criminals and authorities over cryptocurrency money laundering activities. We will discuss how the system works and what the next challenges are.

How Cryptocurrency Laundering Schemes Work

In the early years of the 2010s, criminals chose to simply convert cryptocurrencies at brokerages and trading exchanges. Up to 80% of the money laundering volume circulated through these channels. However, these institutions have been paying attention to the flow of illegal money and have implemented means that make this activity more difficult, which has already been reduced by half. There are also many other minority niche engines, from online casinos to physical ATMs for cryptocurrencies. Another option used is sending cryptocurrencies to commercial entities abroad, which send the money back through “ghost sales”. The most popular method is to hire “Treasure Men” from the dark web market site Hydra. These individuals offer bundles of cash in exchange for cryptocurrencies, or options such as vouchers, debit cards, etc.


When referring to transactions with cryptocurrencies, we use the term “relatively anonymous” because no personally identifiable entries are made. However, these operations are transparent and have IP numbers attached, which can be traced through advanced encryption techniques and specialized procedures in blockchain expertise. Some institutions capable in the sector have been establishing partnerships with governments, helping them to track the origin and path taken by cryptocurrencies in suspicious transactions. Among them we have Chainalysis, in New York (USA), Elliptic, in London (England), and CipherTrace, in California, also in the United States. The effort is intended not only for law enforcement purposes, but also for fiscal purposes — after all, the taxation of cryptocurrencies is a current debate due to the difficulty of execution and lack of regulation in most countries. Big money laundering schemes have been exposed thanks to joint efforts like these. In July of this year, the Brazilian Civil Police seized R$172 million from two individuals and 17 companies. The money laundering scheme was carried out through brokers, who acquired and sold Bitcoin to “ghost companies”. Simultaneously, a $250 million British money laundering scheme, one of the largest ever exposed, was seized by local police. Those responsible for the investigation say it is still in progress, and that they intend to reach the individuals at the heart of the scheme.

Blockchain investigative difficulties — future perspectives

Criminals have adopted some practices to evade tracking by authorities. One of them is “chain-hopping”, the rapid migration between blockchains and between cryptocurrencies. Another is the use of “mixers”, which are money laundering services that mix licit and illicit assets and then redistribute them. These processes are done through software, and the execution of expertise is a very technical and complex task, which requires digital tools with high processing power. It is believed that, in order for the authorities to make greater progress, it will be necessary to modernize the techniques for blocking funds. This is not a task normally possible in most open blockchains, but it can be done in partnership with the brokers where these funds are traded. There is also an international proposal to create an “alert list”, in which governments, brokers and institutions would disclose information about their investigations, including the identifiers of portfolios proven to be linked to illegal activities. At the moment, however, the main technical difficulty lies in the limited number of investigators able to track transactions with cryptocurrencies. The biggest hurdles are: ● Limited access to data; ● Lack of capacity in blockchain technology and cryptocurrencies; ● Technological and infrastructure impediments; Many governments are aware that if the problem is left alone, it could represent both a national security failure and a significant tax evasion “valve”. Investments in these three areas are necessary and are already being made in several countries. Some measures adopted include hiring technicians and computer scientists specialized in blockchain and the purchase of computers and equipment with high processing power, as well as infrastructure to capture high volumes of data. Recent events indicate a growing need to find solutions to the issue. Among them, we can cite the cryptocurrency bull market (2020-2022) and the increase in blockchain investments by countries like the US and the components of the Asian Tigers and the EU. This moment also coincides with the consolidation of data protection laws around the world, an issue of relevance to police investigative efforts (which depend on access to large databases). There are independent organizations working on solutions, however this may already be the time to put into practice international collective initiatives in the fight against “crypto-crime”. The current scenario shows urgency for the matter to be treated with priority.

About the author

Fares Alkudmani has a degree in Business Administration from Tishreen University, in Syria, with an MBA from Edinburgh Business School, Scotland. Naturalized Brazilian. He is the founder of the Growth.Lat company and the Growth Token project.

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