Traditional Money Launderers Appear to Be Using Crypto, Chainalysis Says

Crypto criminals may not be the only ones trying to hide their illicit fund movements across blockchains. According to analytics company Chainalysis, traditional money launderers – criminals working outside crypto – may be moving their cash on-chain too.

Released Thursday, Chainalysis’ latest report on crypto money-laundering shines a light on an apparently flourishing world of on-chain money transfers that aren’t definitively illicit but nevertheless share the characteristics of transactions that would raise eyebrows in banks.

Traditional money launderers are starting to utilize crypto networks to create “large-scale money laundering infrastructure” to clean cash that originated outside of crypto, Chainalysis Head of Research Kim Grauer told CoinDesk.

These transfers don’t originate from the crypto scams, thefts and ransomware attacks that Chainalysis is famous for flagging on the blockchain, the transparent digital ledger of all crypto transactions. Their software and labeling systems help crypto exchanges and other entities avoid accepting funds from criminal activity and assist government investigators in tracking suspects down.

By contrast, this more opaque class of transaction comes from wallets that aren’t known to be illicit. And yet they flow across blockchains and into exchanges following strategies that traditional financial compliance departments would likely flag. For example: splitting into rounded tranches sized just below know-your-customer reporting thresholds, and then sticking them back together later on.

Grauer said most on-chain investigators won’t be surprised that this kind of thing has been a potential trouble spot for years. Still, she said the July report is Chainalysis’ first attempt to document how big the trend is across the entire blockchain. The company found it was orders of magnitude larger than even the known illicit transaction base.

Indeed, Chainalysis found a glut of transactions valued just below the $10,000 mark – at which point additional know-your-customer rules kick in – when analyzing all transfers sent to exchanges in 2024.

It’s worth noting that just because a crypto transaction to an exchange is, say, $1 below the $10,000 threshold, it isn’t definitively illicit. But banks and money services businesses in the traditional financial sector have long used heuristics like that to track down criminal activity.

“Our investigators take many things into consideration when they’re determining whether something is suspicious, and this would be one thing – but definitely not enough” to prove wrongdoing, Grauer said.

Far more telling are transactions that flow to over-the-counter brokers who advertise their willingness to turn criminal crypto into dollars, no questions asked.

“This is trying to advance the conversation about how we in crypto think about compliance techniques to mirror what was developed in traditional banking,” Grauer said.