Cypto-2020

According to a newly released Chainalysis blog post, contrary to popular opinion, organized crime groups have adopted cryptocurrency because they think it is more efficient, fast and the perception that it affords them anonymity. However, they have limited intent or expertise for any sophisticated obfuscation of their financial trails. 

One of the biggest reasons criminal groups have resorted to using crypto is that it enables rapid, borderless payments, allowing their networks to move funds globally without the delays or risk linked to traditional banking systems.

Why criminal groups are really using crypto

Mexican cartels are one of the criminal groups out there increasingly taking advantage of crypto’s advantages. They have been observed using crypto to pay Chinese suppliers for fentanyl precursors, capitalizing on low transaction fees and instant transfers.

Every single action not deliberately obfuscated on the blockchain is transparent and verifiable. Source: Chainalysis

Many of these criminals operate on the common belief that crypto facilitates untraceable financial anonymity. It is actually a misconception, as every single action, not deliberately obfuscated, that happens on the blockchain is available to anyone with the know-how to see.

Ironically, that misconception has been driving adoption, particularly among groups like cartels and wildlife traffickers who often reportedly use it without advanced privacy tools.

The fact that so many of these bad actors have been using crypto in recent times proves that they are using it more because it is unrestricted by borders and simplifies financial operations for illicit activities, rather than because they think it grants anonymity.

According to the report, this is why organized crime that capitalizes on crypto is often not sophisticated. Compared to state-backed cyber criminals like North Korean hackers who utilize advanced obfuscation methods like mixers or privacy coins e.g Monero, traditional organized crime groups just go about their business without covering their tracks.

These criminals would often use regulated exchanges for cash-outs, an act that exposes their funds to KYC-compliant platforms. Good examples are cartel-linked launderers who move fentanyl proceeds through CEX accounts, leaving clear on-chain trails.

It has also been observed that most groups stick to widely available cryptocurrencies like Bitcoin or stablecoins, choosing to avoid privacy coins because of how complex they make things or limited liquidity.

The major focus is always on scaling operations rather than evading detection because crypto’s borderless nature allows them to reach their global customer bases.

It is actually good news for law enforcement

The brazen use of crypto by organized crime groups for nefarious purposes, because they don’t try hard to hide, creates various opportunities for law enforcement.

As earlier stated, virtually every action that happens on the blockchain can be traced because it acts like an immutable ledger. This means that investigators can trace transactions in real-time and map the criminal networks across borders, something that would have been almost impossible to do with traditional banking.

The fact that criminals also rely on CEXs, which comply with KYC/AML regulations, can also help authorities identify and freeze assets as well as gather off-chain intelligence. A good example of this was when the Ledger co-founder was kidnapped and investigators were able to trace nearly all ransom funds and seize them.

Unfortunately, while the blockchain offers avenues to track transactions, law enforcement faces challenges because of their limited blockchain expertise, as crypto is yet to go mainstream.

While training can help more officers identify case overlaps, broader adoption is needed to properly capitalize on the transparency crypto offers.

Mastering blockchain analysis will also encourage and aid proactive tracking, which will allow law enforcement to disrupt criminal networks before their crimes escalate. It is crucial this happens fast because criminals may eventually start employing more sophisticated techniques before crackdown efforts become coordinated enough.

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