Illegal Crypto Transaction Volumes Hit All-Time High

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Over $20bn worth of illegal transactions were carried out using cryptocurrency last year, a record high that’s likely to grow as more illicit activity is uncovered, according to Chainalysis.

The blockchain analysis firm helps police, government agencies and other entities to trace cryptocurrency transactions for compliance, law enforcement and other goals.

It claimed to have recorded more illicit funds flowing through blockchains last year than any year previously. The figure for 2021 was $18bn.

However, a large quantity (44%) of this money was linked to sanctioned entities, and specifically Russian cryptocurrency exchange Garantex, which was sanctioned by the US Treasury’s Office of Foreign Assets Control (OFAC) in April 2022.

“Transactions associated with Garantex or any other sanctioned crypto service represent, at the very least, substantial compliance risk for businesses that are subject to US jurisdiction, including fines and potential criminal charges,” Chainalysis said in the introduction to its latest annual report.

In fact, transaction volumes across all other categories of crypto crime fell, except for “stolen funds” which saw a 7% increase.

“The market downturn may be one reason for this,” the firm added.

“We’ve found in the past that crypto scams, for instance, take in less revenue during bear markets, likely because users are more pessimistic and less likely to believe a scam’s promises of high returns at times when asset prices are declining. In general, less money in crypto overall tends to correlate with less money associated with crypto crime.”

That said, the overall share of cryptocurrency activity linked to illegality rose slightly for the first time since 2019 – from 0.12% of overall volumes in 2021 to 0.24% in 2022.

That still makes it a relatively small component of overall cryptocurrency activity. However, Chainalysis didn’t include “off-chain” criminal activity in its report – where the proceeds of drug trafficking and other crimes may have been moved into crypto for laundering.

The firm also cautioned that its estimated of $20.1bn for 2022 is likely to increase over time as it identifies new addresses.

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