2018 January 22 - Volume.2 Issue.3

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2018 January 22 - Volume.2 Issue.3

Goto Full Issue

Illicit Bitcoins Funneled Through European Fiat Off-Ramps Increasing

A recent report that was co-authored by Bitcoin analytics firm, Elliptic, and the Center on Sanctions and Illicit Finance, a program funded by Washington based Think Tank, the Foundation for Defense of Democracies, found that only a small portion of the cryptocurrency, under 1%, entered conversion to fiat services.

While the report looked at a narrow dataset, it concluded that mixing services used to obfuscate transactions, and online gambling sites were the largest culprits. European exchanges saw an increasingly disproportionate amount of illicit Bitcoin conversions (See Chart).

The study that aimed to look at how dirty money moved through the system looked at half a million illicit Bitcoins over the period of 2013-16 that ended-up in fiat-off ramp exchanges as well as other conversion services. Considering the amount of Bitcoin thefts off exchanges alone (Diar, 19 December 2017), the report stated that “actual volume of illicit Bitcoin transactions is almost surely to be significantly larger than represented in our sample.”

While exchanges actually ended up processing 45% of laundered Bitcoins, due to the actual volume of transactions seen on the platforms, the actual proportion of their total activity that can be construed as illicit is low.

And while there is a major problem facing authorities’ due to unknown jurisdictions of many conversion services, two European exchanges accounted for a whopping 50% of all the bitcoins that where laundered through a total of 120 exchanges. The report did not identify which exchanges.

Distribution of Illicit Bitcoin To Conversion Service By Region (%)

Source: Elliptic

How the U.S. Treasury’s Financial Crimes Enforcement Network (FinCen) defines money laundering – A three-step process of making “illegally-gained proceeds (i.e. ‘dirty money’) appear legal (i.e. ‘clean’),” by 1) placing dirty money in the legitimate financial system, 2) layering it within additional transactions to obfuscate its origins, and 3) integrating it into the financial system with more transactions so the funds appear licit.

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