Growth in Illicit Crypto Finance ‘Inevitable’: CipherTrace

decrypt.co April 19 2021 14:00, UTC
Reading time: ~4 m

According to blockchain analytics firm CipherTrace, growth in illicit finance using cryptocurrencies is “inevitable” as the crypto ecosystem develops.

“As the cryptocurrency ecosystem grows, it’s inevitable that illicit finance will expand alongside it,” John Jefferies, chief financial analyst at CipherTrace, told Decrypt. “The growth in cryptocurrency interest creates the potential for money laundering and tax evasion,” he added. 

Jefferies' comments come in the wake of a report by Michael Morell, former director at the Central Intelligence Agency (CIA), which argued that cryptocurrencies were not widely used for criminal activity.

In the report, titled “An Analysis of Bitcoin’s Use in Illicit Finance,” Morell notes that while cryptocurrencies—like many other new innovations—have attracted the attention of bad actors, the generalizations of Bitcoin’s use in illicit finance are "significantly overstated".

“It is excellent to have members of the intelligence community echoing what the cryptocurrency community has been saying for a long time,” Marta Belcher, special counsel for the Electronic Frontier Foundation, told Decrypt. "Notably, criminals have long used cash to aid in committing crimes, but we don’t call for a ban on cash as a result," she added.

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Morell refers to a recent study by blockchain forensics firm Chainalysis, which found that only 1% of all cryptocurrency activity between 2017 and 2020 related to illicit activity. In addition, he added that estimates of illicit activity in fiat currencies amount to 2%-4% of the world’s total GDP.

However, Maddie Kennedy, senior director of communications at Chainalysis, told Decrypt that the firm's estimates about illicit activity using cryptocurrencies could go up as data collection techniques improve. "It's worth noting that our crime numbers for 2020 will likely go up a bit over time as we uncover more illicit activity that occurred last year," she said, noting that the firm could yet identify further ransomware attacks or scams that it wasn't previously aware of.

Our 2021 Crypto Crime Report is here! Get 100+ pages of original data, research, & case studies on the latest trends in cryptocurrency-related crime, such as the ransomware spike, concentration in money laundering, darknet markets' difficulties, and more. https://t.co/nFrNnLEbly pic.twitter.com/imbxFz2rII

— Chainalysis (@chainalysis) February 11, 2021

In addition, Kennedy, said, while the percentage of criminal activity conducted using cryptocurrency has decreased recently, that's partly because overall crypto activity has surged. "One reason the percentage of criminal activity fell is because overall economic activity nearly tripled between 2019 and 2020." Kennedy said, while noting that "the absolute value fell as well."

Crypto and election meddling

The study comes as illicit finance using cryptocurrencies is expanding beyond criminal groups to include political activities.

On April 16, the U.S. Office of Foreign Assets Control (OFAC) sanctioned 16 groups and 16 individuals for allegedly seeking to meddle in the 2020 U.S. presidential election. 

Among those 32 entities—16 of which are groups and 16 of which are individuals—several used cryptocurrencies to finance their efforts, as Decrypt reported at the time.

Specifically, the three entities are SouthFront, an online disinformation site that “receives taskings” from Russia’s Federal Security Service (FSB), the Association for Free Research and International Cooperation (AFRIC), a front company for Revgeniy Prigozhin, a Russian financier operating in Africa, and Secondeye Solution (SES), a Pakistan-based synthetic identity vendor. In addition to these groups is one individual, Mujtaba Ali Raza, who owns Secondeye Solution. 

Per a study by Chainalysis, SES received over $2.5 million in cryptocurrencies since 2013. Its owner, Raza, has personally received over $14,000 in Bitcoin and Litecoin. The Chainalysis report also found that SouthFront received over $12,000 in Bitcoin, Bitcoin Cash, and Ethereum. AFRIC, while having Zcash and Dash wallets, has never received any of these coins. 

While the synthetic identity vendor used crypto to fund its business, members linked to a foreign interference group in Russia—the Internet Research Agency (IRA)—allegedly purchased these SES documents to run disinformation campaigns. American intelligence services previously linked the IRA to an influence campaign during the 2016 election. 

Of course, estimates about just how much cryptocurrency activity amounts to illicit activity are only based on what can be seen; by their very nature, illicit activities are hard to identify.


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