TL;DR: Blockchain security and analytics firm Chainalysis published an excerpt from the forthcoming 2020 Crypto Crime Report. In it, researchers “traced $2.8 billion in Bitcoin that moved from criminal entities to exchanges. Just over 50% went to the top two: Binance and Huobi,” leading “all exchanges in illicit Bitcoin received by a significant margin.”
Chainalysis: Binance and Huobi Responsible for More Than Half of Illicit BTC
Binance Chief Compliance Officer Samuel Lim responded to the claims made by Chainalysis directly, insisting, “In every jurisdiction that we operate in, Binance is compliant and adheres to local regulations and KYC requirements. We have built trust among regulators, financial institutions and the public through our developments and values, and we will continue to raise the bar in addressing AML compliance to the highest standard and across the largest asset coverage.”
Crediting “the inherent transparency of blockchains,” Chainalysis “can look at cryptocurrency’s money laundering ecosystem from a high level, and draw insights that aren’t possible when studying money laundering in the traditional fiat currency world,” the report explained. Exchanges are an increasingly popular and “steadily growing” way for cryptocurrency-related criminals to off-ramp their ill-gotten gains.
“Overall, just over 300,000 individual accounts at Binance and Huobi received Bitcoin from criminal sources in 2019,” the report specified. Chainalysis studied the numbers of unique accounts “based on the total amount of Bitcoin the accounts have received individually, from both criminal and non-criminal sources. All accounts shown have received at least some criminal funds.” Such funds appear to be concentrated into small, very active segments.
Fingers Point to OTC Brokers: Rogue 100
“The 810 accounts in the three highest-receiving buckets took in a total of over $819 million in Bitcoin from criminal sources, representing 75% of the total,” the report continued. “Our analysis suggests that many are OTC brokers,” so-called over-the-counter operators who bring together buyers and sellers who are not on an otherwise “open exchange.” They’re described further as “a crucial source of liquidity in the cryptocurrency market. While it’s impossible to know the exact size of the OTC market, we know that it’s huge. Cryptocurrency data provider Kaiko even estimates that OTCs could facilitate the majority of all cryptocurrency trade volume.”
OTC brokers also often offer little-to-no know-your-customer (KYC) requirements, which can be a less friction-filled experience for whales or traders who still want the liquidity of a major exchange. “Many [OTC brokers] take advantage of this laxity and help criminals launder and cash out funds, usually first by exchanging Bitcoin and other cryptocurrencies into Tether as a stable intermediary currency before they presumably cash out into fiat,” Chainalysis concluded.
Researchers assembled a list of 100 OTC brokers they believe offer essentially money laundering services, calling them the Rogue 100. “70 of the OTC brokers in the Rogue 100 are in the group of Huobi accounts receiving Bitcoin from illicit sources,” the report stressed. “32 of them are in the group of 810 accounts receiving the most illicit Bitcoin, and 20 of them received $1 million or more worth of illicit Bitcoin in 2019. In total, these 70 OTC brokers received $194 million in Bitcoin from criminal entities over the course of 2019. Interestingly, none of those 70 Rogue 100 accounts operate on Binance,” they noted.
The usual calls for more oversight, cooperation with law enforcement, more regulation, newer laws were suggested and proposed by the report. Within the last few years especially, cryptocurrency exchanges have gained increasing importance within the ecosystem. As such, they’re often targeted centralized honey pots, fonts for valuable information also critical to law enforcement. Kraken, a US-based exchange not mentioned by name in the report excerpt, recently released the burden regulation around the world mandates on its daily business operations, suggesting a happy medium has yet to be found.
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