The first six months of 2018 have seen nearly three times as much crypto getting stolen than in all of 2017, a new report by CipherTrace has revealed. The FBI has also reported a six-fold increase in the number of crypto-related complaints from 2015 to 2017. Criminals have taken to cryptos in earnest as they seek to use technology to hide their activities, and it has been working out pretty well for them. The report also detailed an intricate web of services that help these criminals launder the stolen crypto through the use of tumblers, mixers and foggers. These services, most of which advertise themselves in plain sight, help them hide the origin and receipt of the stolen tokens.
The Rise of the Crypto Criminal
Money laundering has greatly evolved from the traditional practice invented by Italian mafias and is now done through complex technology. With cryptos being increasingly used for criminal purposes, money laundering services are becoming more prominent and the expanding market for these services has continued to attract more players.
The first step in the crypto money laundering process is layering, the report by the Menlo Park, California-based blockchain security and forensics firm noted. Layering involves moving money to a service that randomly moves it around to obfuscate its owner and makes him or her harder to trace should regulatory agencies snoop around. The more it’s moved around, the harder it is to trace back to the owner. Layering is done through the use of tumblers, mixers, and chain hopping. These services cost criminals 1-3%, a small price to pay to make the stolen cryptos legitimate and untraceable.
Next is the integration phase in which the laundered cryptos are introduced into the mainstream financial system via exchanges. This is a risky process, as most exchanges have measures in place to flag suspicious deposits. However, once this is done, the stolen crypto becomes legitimate and can be sold on exchanges.
The report listed some of the most popular crypto money laundering services, some of which have terminated their services in the wake of regulatory scrutiny. They include BitcoinFog, Helix, CoinMixer, PrivCoin, BitLaunder and BitMixer. Illegal though their services may be, these firms are bold enough to advertise their services on popular platforms, with the report singling out CoinMixer which even has an advertisement on Google AdWords.
The rise of crypto gambling sites has also aided criminals in avoiding scrutiny. These sites have little to no KYC procedures, and users can deposit and withdraw cryptos as they wish. Criminals deposit funds into their gambling accounts, make small bets just to legitimize their accounts, and then withdraw the rest to various accounts. This makes it almost impossible to trace the stolen tokens.
The report concluded by calling for more stringent measures against crypto theft, especially through the use of advanced technology and public awareness. If left unchecked, cryptos will offer a safe haven for international criminals who will launder billions of dollars worth of funds without ever getting apprehended. The demand for sophisticated technology capable of decrypting and “de-anonymizing” crypto transactions is growing by the day, as regulatory authorities recognize the increasing risk that an unchecked crypto ecosystem poses.