Updated: Apr 29
If there was a dumb and dumber Darwin Award for crypto criminals, it would be given to cryptocurrency money launderers. Because Bitcoin and other cryptocurrency transactions are recorded on the blockchain, an immutable permanent public ledger, crypto money launderers ultimately provide law enforcement with a map to catch them. Like Google Maps, the blockchain serves as a crypto transaction tracing a map. It is full of streets and highways in the form of data-driven clues. Some crypto criminals think the use of cryptocurrency tumblers, or bitcoin mixers that clean dirty cryptocurrency by bouncing it between different crypto addresses and recombining it into a crypto wallet, will sufficiently mask their real identity. It doesn’t. Most common tumblers have significant privacy and security imitations that cryptocurrency crime investigators can exploit. While it takes a bit of time and talent for law enforcement to assemble and analyze the clues it can, and has, been done. In June 2019, law enforcement officials in Spain arrested 35 suspects for crypto money laundering and bank fraud. The suspects allegedly laundered over $1.2 million using bitcoin. Law enforcement flagged the unauthorized use of 104 car rental company’s banking cards in Spain and other counties. The pursuant investigation painstakingly gathered and reassembled the clues to discover the credit card bin attack fraud operation and discover the suspects who used the rental car company banking cards to generate and apply new fraudulent card numbers. Florida real estate investors discovered a way to dodge domestic and U.S. economic sanctions by using Bitcoin to buy up real estate, especially in south Florida and California. Using cryptocurrency to buy real estate as part of a money-laundering scheme is especially dumb because the beneficiaries of real estate transactions are always going to be traced. Real estate transactions using cryptocurrency can also be located on the blockchain, leaving digital clues for law enforcement. Postmedia, a Canadian news media company, conducted a study that analyzed money laundering in British Columbia real estate transactions. One investigation alleges real estate transactions using cryptocurrency were part of the scheme to launder about $100 million of the $220 million generated in drug-trafficking activities. While most of the $100 million in illicit cryptocurrency real estate transactions were invested in Metro Vancouver properties, the investigation discovered a lot of the laundered money ended up in other cities around the world. Investigators follow the digital transaction map, analyze suspicious transaction reports, and gather anti-money-laundering (AML) and know-your-customer (KYC) data to ultimately uncover the identities of real estate money laundering criminals. More recently, in March 2020, the U.S. Department of Justice (DOJ) charged two Chinese nationals, Tian Yinyin and Li Jiadong, for allegedly conspiring with N. Korean state-sponsored hackers to rob bitcoin worth over $100 million from cryptocurrency exchanges as part of an N. Korean money-laundering scheme. Kim Jong-un’s regime is under U.S. sanctions placed to restrict its nuclear weapons programs. To generate revenue to fund its weapons program N. Korea resorted to using far-reaching and sophisticated cyberattacks to steak about $2 billion from financial institutions and cryptocurrency exchanges. Yinyin and Jiadong played a role in that scheme by “laundering” the stolen funds on behalf of N. Korea and successfully cashed out stolen cryptocurrency worth about $100 million. When cryptocurrency is converted to fiat money, true identities can be revealed through AML and KYC rules followed by most crypto exchanges. Through a painstaking investigation, law enforcement investigators were able to tie the crypto money laundering transactions to a real-world identity.