A report issued by TRM Labs indicated that Tether’s USDT, the largest stablecoin in the cryptocurrency industry, was the preferred stablecoin used for illicit transactions during 2023. TRM Labs alleges that 1.6% of USDT’s volume was linked to illicit activity last year, with $19.3 billion worth of USDT used in illegal transactional flows. TRM Labs […]
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Andrea Gacki, director of the Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury, appears onscreen during the Chainalysis Links conference in New York, US, on Thursday, May 19, 2022.
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Sanctioned entities, like those linked to North Korean hacking groups and U.S.-designated terrorist organizations such as Lebanon’s Hezbollah, continue to rely on cryptocurrency for fundraising, according to a new report from Chainalysis.
The American blockchain analysis firm’s “2024 Crypto Crime Report” found that $24.2 billion of illicit cryptocurrency was transferred in 2023, based on already identified illicit crypto wallets. Chainalysis retroactively updates its yearly crypto figures when new illicit wallets come to light.
While last year’s numbers currently represent a drop from the previous year, Chainalysis noted a much higher proportion of the funds were attributed to sanctioned or terrorist-linked recipients, accounting for about 61.5% of total illicit transaction volume in 2023.
“Actors subject to sanctions are often cut off from international traditional financial systems, and crypto can become an attempted alternative mechanism to store, send, and receive funds,” Andrew Fierman, head of sanctions strategy at Chainalysis, told CNBC on Thursday.
Crypto mixers are software that obscure the history and origin of digital assets sent through them.
The amount of crypto transferred to sanctioned entities has climbed in recent years in tandem with a greater share of new trade restrictions specifying crypto wallets.
In 2023, the U.S. Office of Foreign Assets Control sanctions list imposed a total of 18 new sanctions on individuals and entities, including their associated crypto wallets.
At least nine of the new sanctions were against individuals and entities across China and Latin America for their alleged role in fentanyl manufacturing and trafficking. Meanwhile, five of the sanctions targeted entities deemed to have violated sanctions on North Korea.
The top crypto recipient added to the sanctions list last year was Sinbad.io — a bitcoin mixer that was shut down in November of 2023 — which received $665.4 million in crypto from the Lazarus Group.
Still, sanctions have shown the ability to slow the flow of crypto funds to their targets. Tornado Cash’s monthly inflows dropped by as much as 93% immediately following its placement on the U.S. list, according to Chainalysis. Though the firm noted inflows slowly rebounded from that low in the following months.
Of sanctioned countries, Iran was a major recipient of illicit funds, with 73.3% of inflows coming from international mainstream exchanges indicating the services might be used to subvert sanctions, Chainalysis said.
Illicit crypto volume identified by Chainalysis as terrorist financing accounted for a much smaller proportion than that of transactions to sanctioned entities in 2022.
Chainalysis argued that, contrary to popular belief, cryptocurrency is not an effective tool for terrorism funding because blockchain allows funds to be traced at a level of detail not typically available in traditional finance.
“The transparent nature of cryptocurrency combined with blockchain analytics provides an invaluable forensic tool that empowers governments to identify, trace, and disrupt the flow of funds – something that isn’t possible with other forms of value transfer, especially cash,” said Chanalysis’s Fierman.
Despite these obstacles, terrorist organizations have continued to try to utilize cryptocurrencies for fundraising, deploying intricate networks of crypto exchanges and service providers, the report said.
Last year, tracing efforts resulted in the seizure of millions in funds. In one such case, Israel’s National Bureau for Counter Terror Financing said in June that it had seized $1.7 million of cryptocurrency linked to Hezbollah and Iran’s Quds Force through a Syria-based financial facilitator named Tawfiq Muhammad Said Al-Law.
Chainalysis’s report outlined how Al-Law’s relied on a network of legitimate mainstream exchanges and an extensive network of wallets for cryptocurrency transactions to aid Hezbollah’s cryptocurrency financing infrastructure.
The wallets linked to Al-Law collectively received funds ranging from millions to over $1 billion in cryptocurrency, involving up to tens of thousands of transfers.
Meanwhile, entities and individuals linked to designated terrorist groups, such as ISIS and Hayat Tahrir Al-Sham, have continued to solicit cryptocurrency through crowdfunding efforts.
However, according to Fierman, efforts in tracing and seizing these funds have become increasingly sophisticated.
“The data also shows that as crypto adoption by illicit actors continues to grow, sanctioning bodies like OFAC are continually evolving their methods to identify these actors and disrupt their activities,” he added.
In another example cited in the Chainalysis report, Al-Qassam Brigades, the military wing of Hamas, announced their decision to stop accepting crypto donations last year due to the risk of potential donors being traced. This followed reports that Hamas had received large amounts of cryptocurrencies in the lead up to its attack on Israel on Oct. 7.
Although terrorism financing is a “small share” of illicit crypto activity, it still presents an “ever-present concern” in the ecosystem, said Chainalysis in its report.
Strengthened public and private partnerships are needed to help bolster these efforts and to decipher between illicit actors and funds sent to conflict zones for legitimate causes, it added.
The US Treasury Department’s Office of Terrorism & Financial Intelligence (TFI) wants enhanced tools and authorities to combat illicit fund movements facilitated by crypto. TFI Under Secretary Brian Nelson presented this request in a prepared Feb. 14 statement to the House Financial Services Committee.
Nelson expressed deep concern regarding the use of virtual assets in illicit financial activities. According to him, the Treasury Department has developed an anti-money laundering framework to address terrorism financing while promoting responsible innovation.
Despite these efforts, Nelson argued that threat actors such as ransomware cybercriminals, scammers, and terrorist groups exploit vulnerabilities such as jurisdictional arbitrage and non-compliant financial institutions to profit from illicit activities using virtual assets.
To tackle these vulnerabilities, the Treasury is implementing new tools. These include efforts to reduce the anonymity associated with digital asset mixers and holding non-compliant firms accountable under the Bank Secrecy Act and sanctions regulations. Nelson said,
“This action seeks to increase transparency in the virtual asset ecosystem and assist U.S. government efforts to mitigate these illicit finance risks by requiring covered financial institutions to report on transactions involving mixing.”
Despite these measures, the official highlighted the need for “additional tools and resources” to “root out illicit finance by players in virtual asset markets and forums.”
“That is why we are eager to work with Congress to adopt common-sense reforms that update our tools and authorities to match the evolving challenges we face today.”
Last year, Treasury Department Deputy Secretary Wally Adeyemo emphasized the need for enhanced sanctions and authorities to strengthen efforts against illicit actors.
This statement follows recent scrutiny of virtual assets used in illicit activities, particularly in conflict regions like Israel/Palestine and Russia/Ukraine. Some critics, including Senator Elizabeth Warren, allege that the emerging industry significantly facilitates terrorism financing and money laundering.
However, major crypto stakeholders such as Coinbase, Binance, and Elliptic refute these claims, asserting that blockchain technology offers numerous benefits that can be used to safeguard the broader financial system.
The U.S. government has raised concerns about digital asset companies failing to address the flow of illicit funds in the industry adequately.
In an Oct. 27 speech delivered at London’s Royal United Services Institute, Wally Adeyemo, the U.S. Deputy Treasury Secretary, pointed out that some companies in the crypto industry are primarily focused on technological innovations, which makes them sometimes overlook the potential consequences of the unlawful flow of funds.
Adeyemo stated that while the majority of stakeholders in the industry are collaborating with the authorities in stamping out terrorist funding, “there are those in the digital asset space who wish to innovate without regard to consequences instead of doing so responsibly, including protecting against illicit financing.”
“Our expectation is that financial institutions and digital asset companies and others in the virtual currency ecosystem take steps to prevent terrorists from being able to access resources. If they do not act to prevent illicit financial flows, the United States and our partners will,” Adeyemo added.
Adeyemo’s statement is coming on the heels of growing concerns over the role cryptocurrencies play in funding terrorism, particularly in the aftermath of the Hamas attack on Israel.
Several crypto stakeholders, including Coinbase, have extolled the potential for crypto and blockchain technology to mitigate terrorist funding. However, some U.S. lawmakers, like Senator Elizabeth Warren, have, in some instances, overstated the extent to which terrorists exploit these technologies for their benefit.
During an Oct. 26 Senate Banking Committee hearing on “Combating the Networks of Illicit Finance and Terrorism,” Senator John Fetterman questioned why groups like Hamas didn’t use conventional methods such as credit cards or bank accounts for their activities, suggesting a heavy reliance on crypto.
Dr. Shlomit Wagman, the former Director-General of Israel’s Anti-Money Laundering Authority, responded to Sen. Fetterman’s question by emphasizing that terrorist organizations predominantly favor traditional fundraising channels over cryptocurrency.
Prior to the hearing, several crypto advocates had criticized reporting in the Wall Street Journal that claimed Hamas had “raised” through crypto donations. Analytics firm Elliptic replied to the idea that the numbers were faithfully represented by writing that donation volumes had been conflated with overall volumes of various wallets’ transactions. It wrote:
“The data simply does not support this. No public crypto fundraising campaign by a terrorist group has received significant levels of donations, relative to other funding sources.”
That said, Elliptic said that the wallets were likely owned by third-party services that may have been used by terrorist organizations in some cases but also catered to non-terrorist users. Some of these entities have been designated terrorist organizations themselves for their role in financing such activities.
The commingling of illicit funds with legitimate ones is undoubtedly problematic, but understanding its role adds necessary nuance for interpreting data concerning funding numbers.
In a massive cross-border operation, four Chinese nationals and a Lao citizen were apprehended over their alleged involvement in a multimillion cryptocurrency scam that left a trail of devastation and losses amounting to over 2.7 billion baht ($76 million), according to the Cyber Crime Investigation Bureau (CCIB).
As the Bangkok Post reported, the fraudulent scheme trapped at least 3,280 victims through a deceptive cryptocurrency investment platform called BCH Global Ltd.
The victims, who began reporting the fraud to police in November last year, were deceived into investing their money in gold and the cryptocurrency USDT. Further investigation by the CCIB revealed many of the individuals running this fraudulent platform were linked to other similar scams. Their arrest was made possible through a global collaboration involving Homeland Security Investigation and other international law enforcement agencies.
Marking a significant step forward in this transnational crime case, the five suspects were charged with public fraud, conspiracy to commit transnational crime, money laundering, and inputting false information into computer systems.
The Bangkok Post reported that the Office of the Attorney General moved to prosecute the suspects on August 10, with officers from the Anti-Money Laundering Office confiscating properties worth 585 million baht belonging to the suspects on September 4.
CCIB spokesman Kissana Phathanacharoen emphasized to the Bangkok Post that the bureau would continue contacting victims to ensure they know their rights under the law. Victims can lodge complaints through the CCIB’s hotline or at www.thaipoliceonline.com.
In a broader context, Phathanacharoen cited investment scams as the most damaging scams reported to the police. Too often, victims, many of whom had invested their life savings or taken second mortgages on their properties, were lured into these schemes by strangers promising high, guaranteed returns in short periods.
In response to this growing threat, the CCIB is advising the public to remain vigilant, mainly when dealing with online platforms and foreign mobile apps that solicit investments. They further recommend checking the registration numbers of investment firms and verifying the authenticity of investment websites through www.checkdomain.thaiware.com.
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Over the past six years, there has been a significant decline in Bitcoin‘s share in criminal crypto transactions, according to TRM Labs‘ Illicit Crypto Ecosystem report.
In 2016, Bitcoin accounted for 97% of illicit crypto volume. In 2022, the share fell to less than one-fifth or 19% of illegal crypto volume, the report noted.
Moreover, in 2016 two-thirds of crypto stolen from hacks were in the form of Bitcoin, while the share fell to 3% in 2022. In place of Bitcoin, Ethereum and Binance Smart Chain rose to prominence among hackers. Ethereum accounted for 68% of crypto hack volume, and Binance Smart Chain accounted for 19%.
Additionally, Bitcoin was the only cryptocurrency for terrorism financing in 2016. However, in 2022, assets on the Tron blockchain became a popular tool, accounting for 92% of crypto used for terrorist financing.
The data suggest that cybercriminals have taken a “qualitative leap away” from Bitcoin and are now exploring other blockchains and assets, the report noted. Crypto compliance and risk management firm TRM Labs said that criminals increasingly resort to chain-hopping or transferring assets from one blockchain to another to obfuscate the source and destination of their ill-gotten funds.
Crypto prices tanked significantly last year thanks to high-profile bankruptcies, including FTX. However, this price fall had “no meaningful impact on the dollar value of crypto-related crime,” the report noted.
TRM Labs identified and analyzed 40 different types of crypto crimes in its report. According to its estimates, victims lost around $7.8 billion to Ponzi or pyramid schemes last year. Another $2 billion worth of crypto was stolen through cross-chain attacks.
The report also indicated that approximately $1.49 billion was funneled into Darknet markets in 2022, with over 80% of these funds directed to Russian-language darknet markets.
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