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Bitcoin Laundering: An Analysis of Illicit Flows into Digital Currency Services

Co-authored by Tom Robinson

Bitcoin Laundering: An Analysis of Illicit Flows into Digital Currency Services

Yaya J. Fanusie
12th January 2018 - FDD’s Center on Sanctions and Illicit Finance Research Memo

New Study Finds Patterns in Money Laundering through Bitcoin

FDD’s Center on Sanctions and Illicit Finance, Elliptic report is the first public domain analysis of how illicit digital currency is laundered around the globe

Download the full memo here.

Washington, D.C., January 12, 2018 – Bitcoin gambling sites, “mixers” and European Bitcoin exchange may be the destinations of choice for criminals looking to launder bitcoins, according to a study issued today by the Foundation for Defense of Democracies’ (FDD) Center on Sanctions and Illicit Finance (CSIF) and cryptocurrency analytics firm Elliptic.

Through extensive analysis of a data sample of Bitcoin transactions between 2013 and 2016, CSIF director of analysis Yaya Fanusie and Elliptic’s Dr. Tom Robinson identify trends in the flow of bitcoins from illicit actors to various digital currency exchanges and services. The process is similar to money laundering, but without as many steps.

The report, “Bitcoin Laundering: An Analysis of Illicit Flows into Digital Currency Services,” is the first such study of its kind.

“We discovered several patterns during our research, including how Bitcoin exchanges received the greatest amount of identified illicit bitcoins out of all digital currency conversion services,” said Fanusie, a former CIA economic and counterterrorism analyst. “But they also processed the majority of Bitcoin transactions overall.” He added that the services with the highest proportion of Bitcoin laundering within their platforms were mixers – online software tools that obscure Bitcoin transaction history – and online gambling sites.

The study found that digital currency conversion services based in Europe received the greatest share of illicit bitcoins out of all the identifiable regions -- more than five times as much as North American services. However, many services that process illicit bitcoins conceal their locations.

“This study shows that particular services are prone to being exploited to launder proceeds of ransomware, darknet marketplace trade and other illicit activity,” said Tom Robinson, Chief Data Officer at Elliptic. “It also demonstrates the transparency of the Bitcoin blockchain, and the analytical techniques that can be used by law enforcement to trace and apprehend cyber criminals, and by financial institutions to prevent the reintroduction of this dirty money into the mainstream financial system.”

The authors suggest that law enforcement can combat cyber crime by targeting and exposing darknet marketplaces. They further suggest that compliance professionals assessing financial crime risk should take into account flows of funds originating from cryptocurrencies, both directly and indirectly. The risk is particularly acute for those financial institutions that are providing banking services to cryptocurrency businesses such as exchanges.

The report calls on Congress to create a Commission for National Digital Currency Preparedness to address both the risks and strategies of new financial technologies.

Download the full memo here

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About FDD and its Center on Sanctions and Illicit Finance:

The Foundation for Defense of Democracies (FDD) is a Washington, DC-based non-partisan policy institute focusing on foreign policy and national security. Visit our website at www.defenddemocracy.org and connect with us on Twitter, Facebook, and YouTube.

FDD's Center on Sanctions and Illicit Finance (CSIF) expands upon FDD's success on the use of financial and economic measures in national security. CSIF provides critical research, policy, and subject matter expertise in the field of national economic security and the critical intersection between illicit finance and national security, including money laundering, terrorist financing, sanctions evasion, proliferation financing, cyber crime and economic espionage, and corruption and kleptocracy. This includes understanding how America can best use and preserve its financial and economic power to promote its interests and the integrity of the financial system while examining how America's adversaries may be leveraging economic tools and power. www.defenddemocracy.org/csif

About Elliptic:

Elliptic is the global leader in detecting and investigating cybercrime involving cryptocurrencies. Elliptic’s technology has enabled key advances in investigations into dark marketplace activity, ransomware and cyber extortion, providing evidence that has led to convictions. We also enable companies handling bitcoin to meet their anti-money laundering obligations, by allowing them to confidently perform AML transaction screening.

 

www.elliptic.co

Tags

bitcoin, csif, cyber, laundering