Sanctioned actors and jurisdictions worldwide are finding new ways to use cryptoassets to evade restrictions and continue their illicit activities, per a recent report by blockchain analytics firm Elliptic.
Some of the ways this is accomplished is using privacy coins, coinswap services, privacy wallets, decentralized exchanges (DEXes) and decentralized finance (DeFi) platforms that don’t require a know-your-customer (KYC) procedure, as well as by “engaging in or promoting crypto mining activity.”
The company analyzed the actions of entities sanctioned by the US Department of the Treasury’s Office of Foreign Assets Control (OFAC). Its research shows that cryptoasset wallets listed on the institution’s Specially Designated Nationals and Blocked Persons List (SDN List) have to date received more than USD 175m in bitcoin (BTC) and ethereum (ETH), demonstrating how crypto helps sanctioned actors adapt to a tightening sanctions environment.
The list comprises individuals and companies owned, controlled by, or acting for or on behalf of targeted countries, as well as individuals, groups, and entities such as terrorist organizations and drug traffickers which are not country-specific.
Their assets are blocked and US persons are in general prohibited from dealing with them, according to the OFAC. Between January 2003 and March 2021, the department levied civil penalties for sanctions violations totaling more than USD 4.3bn, added Elliptic.
According to the researchers, some of the emerging issues that facilitate evading sanctions with the use of crypto are related to:
- an increasing use of privacy coins such as monero (XMR), dash (DASH) by illicit actors, such as darkweb markets, to evade the traceability of other cryptoassets;
- a spike in the use of privacy wallets such as Wasabi Wallet whose use for bitcoin laundering expanded by 220% last year compared to 2019, allowing sanctioned entities to launder an estimated USD 160m worth of bitcoin in 2020;
- illicit actors moving away from using large fiat-to-crypto exchange platforms towards coinswap services which sanctioned actors use to launder funds;
- growth of DEXs and DeFi, which could become “a haven for crypto-laundering,” used by cybercrime organizations such as North Korea’s Lazarus Group which hacked Singapore’s crypto exchange KuCoin and used DEXs to launder a portion of the USD 280m-worth stolen cryptoassets.
Red flags of potential sanctions-related activity include customers attempting to log on to an exchange using IP addresses, email addresses,
phone numbers, or other identifying indicators registered in a sanctioned jurisdiction; frequently engaging in transactions through or with entities in countries known to be associated with sanctions evasion activity, with no clear purpose for it; frequently sending/receiving funds to/from exchange services that do not require KYC information and are located in high-risk jurisdictions, etc.
“A rapidly evolving threat landscape and increasing scrutiny from regulators makes it all but certain that the sanctions-related challenges facing the cryptocurrency industry will only grow in complexity over time,” the report said.
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