Chainalysis research on cryptocurrency crime has shown that the amount of cryptocurrency laundered by cybercriminals reached an all-time high of $23.8 billion in 2022, almost double the previous year’s figure of $14.2 billion.
Despite the increasing use of cryptocurrencies for money laundering, this is only a small portion of total money laundering, which includes fiat currencies. According to the United Nations Office on Drugs and Crime, the estimated amount of money laundered globally each year is between $800 billion and $2 trillion.
Previously, Chainalysis emphasized in its 2022 Crypto Crime Report preview that "money laundering is a plague on virtually all forms of economic value transfer, and to help law enforcement and compliance professionals be aware of just how much money laundering activity could theoretically move to cryptocurrency as adoption of the technology increases."
The blockchain analytics firm added that "the biggest difference between fiat and cryptocurrency-based money laundering is that, due to the inherent transparency of blockchains, we can more easily trace how criminals move cryptocurrency between wallets and services in their efforts to convert their funds into cash."
The research conducted by Chainalysis has also shown a significant increase in the use of DeFi as a destination for funds leaving illicit wallets. At the same time, the use of P2P, centralized and high-risk exchanges as well as high-risk jurisdictions decreased last year.
The positive 2022 trend observed by Chainalysis was a considerable decline in the overall value of the assets lost to ransomware attacks. Last year, there was a steep fall from $766 million in 2021 to $457 million in funds stolen by perpetrators.
Furthermore, 2022 was the year of successful seizures of significant amounts of stolen money. One of the most notable was the seizure of $3.6 billion worth of bitcoins stolen in the Bitfinex hack in 2016. On February 8, 2012, Ilya Lichtenstein and Heather Morgan were arrested while nearly 95,000 BTC of the stolen 120,000 BTC were returned to Bitfinex.
Meanwhile, law enforcement agencies are well aware of the potential of cryptocurrencies for money laundering. For example, in its January 26 post, the U.K. Parliament reported that 85% of firms handling crypto assets that had applied to the Financial Conduct Authority (FCA) for registration did not comply with the regulations.
As Sarah Pritchard, the executive director of Markets Supervision, Policy and Competition explained in her response to Harriett Baldwin MP, chair of the Treasury Select Committee:
"As part of the registration process we identified significant failures in relation to key controls such as customer due diligence, risk assessments, transaction and ongoing monitoring, governance and Management Information. In many cases, key personnel lacked appropriate knowledge, skills and experience to carry out allocated roles and control risks effectively and were unable to evidence they met the standards for registration."
Still, she emphasized that the lack of compliance with crypto company registration requirements does not mean that such a business was or would be involved in criminal activity. However, she said, the FCA had identified a small number of likely companies linked to financial crime.
The UK government plans to enforce even better regulation for crypto assets. As stated in the 1 February press release:
"The government will set out ambitious plans to robustly regulate crypto asset activities – providing confidence and clarity to consumers and businesses alike. Consultation proposals include strengthening rules for crypto trading platforms and a robust world-first regime for crypto lending."