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The cryptocurrency industry has gained notoriety over the years due to its use for criminal activity and money laundering.
In late April 2024, U.S. government authorities charged a cryptocurrency mixer service called Samourai Wallet with money laundering offenses. It was alleged that Samourai Wallet was used to launder over $100 million in crypto by cyber criminals.
How high is Samourai Wallet on the list of top crypto money laundering exploits?
In this article, we list the top five crypto money laundering cases of all time.
Key Takeaways
- Crypto’s privacy-preserving properties have drawn criminals to use it for illegal activities.
- Bitfinex was involved in one of the biggest crypto hacks of all time, losing 120,000 Bitcoins.
- Several crypto-mixing solutions like Tornado Cash have been charged with money laundering offenses.
- Samourai Wallet’s mixing solutions “Whirpool” and “Ricochet” were used to launder over $100 million.
- Tornado Cash was used by a sanctioned North Korean cybercrime organization, Lazarus Group, to launder stolen funds.
- According to Chainalysis, over $22.2 billion worth of crypto was laundered in 2023.
Crypto Money Laundering Explained
Let’s briefly talk about what crypto money laundering means.
Money laundering in crypto refers to the act of disguising stolen crypto funds so that they can be used without detection of the illegal activity that produced them.
Top Five Biggest Crypto Money Laundering Cases
Now, let’s read about the biggest crypto money laundering cases that have occurred to date.
Bitfinex Hack
In August 2016, Bitfinex – one of the world’s largest crypto exchanges at the time – was hacked for 120,000 Bitcoins (BTC).
As of April 26, 2024, the stolen crypto was worth $7.73 Billion (at a BTC market price of $64,450), making it one of the biggest crypto hacks of all time.
According to the U.S. Department of Justice (DoJ), two individuals – Ilya Lichtenstein and his wife, Heather Morgan – were arrested on February 8, 2022, for conspiring to launder the proceeds from the hack.
Lichtenstein and Morgan are said to have laundered the stolen funds through a “labyrinth of cryptocurrency transactions.”
The couple used fictitious identities to set up online accounts at crypto exchanges to withdraw funds.
They also converted BTC into other tokens and privacy-preserving cryptocurrencies while using a practice called “chain hopping,” which involves users moving rapidly between various cryptocurrencies.
According to the U.S. DoJ, over 94,000 Bitcoins were recovered by authorities.
Tornado Cash Service
Tornado Cash is a cryptocurrency mixer service that enables users to make their cryptocurrencies untraceable. The service mixes one’s tokens with a pool of cryptocurrencies in order to obscure the trail back to the token’s original source.
Criminals and hackers used Tornado Cash to launder stolen funds and to obfuscate the trail of funds tied to their criminal activities.
In August 2023, the U.S. DoJ charged Tornado Cash co-founders, Roman Storm and Roman Semenov, for creating and promoting Tornado Cash.
According to the DoJ, Tornado Cash facilitated over $1 billion in money laundering transactions.
Government authorities added that the mixer was used by a sanctioned North Korean cybercrime organization called Lazarus Group to launder stolen funds.
In March 2024, Tornado Cash developer Alexey Pertsev was accused of laundering $1.2 billion of illegal funds through the platform. During a two-day trial in late March, the prosecutors asked for 64 months in prison for Pertsev. The judge will deliver the verdict on May 14, as reported by CoinDesk.
Ronin Bridge Exploit
In March 2022, gaming-focused blockchain Ronin Network was hacked for over $600 million in USDC stablecoin and Ether (ETH) tokens, in what is the biggest decentralized finance (DeFi) hack to date.
According to blockchain analytics firm Chainalysis, North Korean cybercrime collective Lazarus Group gained access to five of nine private keys held by transaction validators for Ronin Network’s cross-chain bridge.
They used the keys to approve the withdrawal of 173,600 ETH tokens and 25.5 million USDC tokens.
Thereafter, Lazarus Group conducted a highly sophisticated laundering technique by using over 12,000 unique crypto addresses.
The stolen funds were sent to crypto wallets before being mixed in batches using Tornado Cash. The hackers then swapped ETH for BTC, which was again mixed in batches.
The mixed BTC was deposited to fiat off-ramp services to be converted to cash.
Bitcoin Fog
Bitcoin Fog is said to be the longest-running Bitcoin money laundering service in the world.
According to the U.S. DoJ, Bitcoin Fog operated between 2011 and 2021. During the time, Bitcoin Fog is said to have moved over 1.2 million Bitcoins, valued at $400 million at the time of the transactions.
In March 2024, a U.S. court convicted a dual Russian-Swedish national named Roman Sterlingov for operating Bitcoin Fog.
Acting Assistant Attorney General Nicole M. Argentieri of the Justice Department’s Criminal Division said:
“Roman Sterlingov operated Bitcoin Fog, a cryptocurrency ‘mixing’ service that allowed criminals to launder hundreds of millions of dollars in illicit funds from darknet marketplaces. The defendant and his customers believed they could use Bitcoin Fog to conceal these illicit transactions.
“As the jury’s guilty verdict shows, that belief was mistaken. The Criminal Division is committed to unmasking and prosecuting those who use technology to hide their crimes, no matter how sophisticated the scheme may be.”
Samourai Wallet
Similar to the Tornado Cash allegations, the U.S. DoJ charged co-founders of a crypto mixer service called Samourai Wallet with money laundering offenses in April 2024.
Samourai Wallet is a crypto wallet that was developed in 2015 by Keonne Rodriguez and William Lonergan Hill. According to the DoJ, the wallet had two features that assisted in money laundering activities.
- A feature called “Whirlpool” coordinated batches of cryptocurrency trades between Samourai Wallet users to obscure the fund trail.
- Meanwhile, a feature called “Ricochet” allowed wallet users to make intermediate transactions known as “hops” when sending cryptocurrency from one address to another address.
DoJ alleged that Samourai Wallet was used to launder over $100 million in criminal proceeds and executed over $2 billion in illegal transactions.
How to Prevent Money Laundering in Cryptocurrency?
Putting a full stop to money laundering is very difficult.
Just look at the crypto mixer sector. When government authorities took action against services like Tornado Cash, new mixer solutions like Sinbad and YoMix came up.
Crypto criminals are becoming more sophisticated with time, and they are now diversifying their money laundering activity across more services.
Therefore, fighting crypto crime will require concerned authorities to have a better understanding of on-chain activity than ever before.
Blockchain forensic company Chainlysis wrote in a report:
“The changes in money laundering strategy we’ve seen from crypto criminals like Lazarus Group serve as an important reminder that the most sophisticated illicit actors are always adapting their money laundering strategy and exploiting new kinds of crypto services. Law enforcement and compliance teams can be more effective by studying these new laundering methods and becoming familiar with the on-chain patterns associated with them.”
Meanwhile, financial institutions such as Japan’s Sumishin SBI Net Bank are taking extra measures to reduce cryptocurrency money laundering risk.
In July 2023, Sumishin SBI Net Bank released a mandate restricting users from transferring funds to crypto exchanges for about one month after account opening.
Elsewhere, crypto analytics firm Elliptic said in a report that anti-money laundering (AML) processes were the “obvious answer to maintaining a clean cryptocurrency landscape.”
Simple measures like know your customer (KYC) can stop crypto crime at its source by detecting dangerous users at the earliest opportunity, said Elliptic.
Other measures included wallet screening and transaction monitoring.
The Bottom Line
Crypto’s anonymity and privacy-preserving properties have become a double-edged sword for the industry. There are too many bad actors out there who are misusing cryptocurrencies and giving the entire industry a bad name.
However, as the U.S. Attorney Matthew M. Graves for the District of Columbia said in relation to the Bitcoin Fog’s case:
“Darknet criminals should know by now that operations like Bitcoin Fog cannot provide the anonymity for cryptocurrency transactions that they claim they can.”
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References
- Founders And CEO Of Cryptocurrency Mixing Service Arrested And Charged With Money Laundering And Unlicensed Money Transmitting Offenses (Justice)
- Two Arrested for Alleged Conspiracy to Launder $4.5 Billion in Stolen Cryptocurrency (Justice)
- Tornado Cash Founders Charged With Money Laundering And Sanctions Violations (Justice)
- Alexey Pertsev accused of laundering $1.2bn at Tornado Cash, says Dutch indictment – DL News (Dlnews)
- Dutch Prosecutors Seek 64-Month Jail Sentence for Tornado Cash Dev Alexey Pertsev (Coindesk)
- Crypto Community Makes Profiting Hard for North Korean Hackers (Chainalysis)
- Bitcoin Fog Operator Convicted of Money Laundering Conspiracy (Justice)
- The Chainalysis 2024 Crypto Crime Report (Go.chainalysis)
- お知らせ (Netbk.co)
- Anti-money Laundering (AML) in Cryptocurrency (Elliptic)
