Illicit fund movements across blockchains are not solely the domain of crypto criminals. Traditional money launderers, previously operating outside the crypto sphere, appear to be increasingly leveraging blockchain technology to conceal their activities, according to analytics firm Chainalysis.

Chainalysis Report Findings

Chainalysis’ latest report, released on Thursday, sheds light on the burgeoning realm of on-chain money transfers. These transactions, while not explicitly illicit, exhibit characteristics that would typically trigger scrutiny in traditional financial institutions. Kim Grauer, Chainalysis Head of Research, highlighted the creation of “large-scale money laundering infrastructure” by traditional money launderers utilizing crypto networks to cleanse cash originating from non-crypto sources.

Transaction Characteristics and Compliance Challenges

Unlike transfers stemming from crypto scams, thefts, or ransomware, these opaque transactions emanate from wallets not previously associated with illicit activities. They traverse blockchains and infiltrate exchanges using strategies that would likely be flagged by conventional financial compliance departments. These strategies include splitting funds into rounded tranches just below know-your-customer (KYC) reporting thresholds and subsequently recombining them.

Chainalysis’ software and labeling systems are instrumental in helping crypto exchanges and other entities avoid accepting funds linked to criminal activity and assisting government investigators in tracking suspects. However, the July report represents Chainalysis’ inaugural attempt to quantify the extent of this trend across the entire blockchain ecosystem. The findings reveal that these transactions significantly outnumber known illicit transactions.

The Scope of the Issue

Chainalysis identified a substantial volume of transactions valued just below the $10,000 threshold, a point at which additional KYC rules are enforced, in its analysis of all transfers to exchanges in 2024. This pattern underscores the scale at which traditional money launderers are exploiting blockchain technology to obfuscate their activities.