Cryptocurrency has enjoyed a meteoric rise in popularity over recent years, with tokens such as Bitcoin and Ethereum trading hands for thousands of dollars apiece. Digital assets,such as these, are favoured by many due to their reputation for security, decentralisation, and ease of movement.
The opaque nature of these tokens, however, have seen them utilised by fraudsters. One such method is crypto money laundering, with each occurrence potentially involving hundreds of millions of dollars at a time.
From hacking and rogue mixer services to ransomware and Ponzi schemes, there have been many examples of cryptocurrency money laundering activity in recent years — often with serious ramifications. Join us as we explore six of the most high-profile cases to date.
What is Cryptocurrency Money Laundering?
Cryptocurrency money laundering follows the same pattern used for fiat (government-issued) currencies by “cleaning” funds gained through illicit means, before exchanging or withdrawing them for cash. The tokens are moved through various digital addresses to obscure their illegal origin and make them more difficult to trace.
According to research by Chainalysis, $22.2 billion worth of crypto was laundered in 2023 alone, showcasing the sheer scale of the activity. This is despite considerable efforts by regulators to enforce sanctions and fight digital financial crime.
Cryptocurrency and Money Laundering: How Does it Work?
Thanks to their privacy-preserving nature, cryptocurrencies have become popular vehicles to conceal the true origins of illicitly-gained funds. Cybercriminals will utilise a variety of methods and services to funnel these assets through several businesses or online addresses in order to hide the money trail, before transferring them to a ostensibly legitimate source. From here, they can be converted into cash.
There are several methods that criminals will use when laundering cryptocurrency, including:
- Smurfing: Splitting up large sums of money into smaller amounts so they can be sent via multiple transactions.
- Exchange Hopping: Using multiple cryptocurrency exchanges to transfer funds across several platforms and obscure the money trail.
- Offshore Transactions: Creating offshore accounts to hide the origin of funds.
- Mixing: Blending together the crypto assets of multiple users, making it difficult to determine who owns what.
- Gambling Platforms: Depositing tokens into online gambling websites to be either withdrawn as cash or used to place coordinated bets.
To find out more about crypto money laundering and the techniques involved, check out our blog on the subject.
6 Notable Crypto Money Laundering Cases
Now that we’ve delved into the background of cryptocurrency money laundering, it’s time to explore some of the biggest cases that have taken place in recent years — with some of the larger instances even having a huge knock-on effect on the crypto market as a whole.
Hacking of Bitfinex
One of the largest hacks of all time occurred when the Bitfinex cryptocurrency exchange was hacked in August 2016, with fraudsters making off with 120,000 Bitcoins — worth billions of dollars. According to the US Department of Justice (DOJ), two people were arrested for conspiracy to launder $4.5 billion in stolen tokens relating to the hack.
The couple, Ilya Lichtenstein and Heather Morgan were accused of Bitcoin laundering by using a “labyrinth of transactions” and setting up online accounts with a number of exchanges under false identities. They also used the “chain hopping” technique, which involves swapping the funds between various cryptocurrencies to muddy the paper trail.
Plus Token
Targeting people in China and Korea, the Plus Token Ponzi scheme promised investors lucrative returns of between 9% and 18% via what turned out to be a fake programme. The scheme eventually collapsed in 2019, but not before the perpetrators had managed to walk away with almost $3 billion worth of Bitcoin.
Such was the scale of the fraud that the scheme was, at least for a time, attributed to a drop in the overall price of Bitcoin. In July 2020, over 100 people were arrested for their part in the activity, with the main parties sentenced for up to 11 years.
Thodex
Turkey’s Thodex cryptocurrency trading website abruptly shut down in April 2021, locking almost 400,000 users out of the service. Its CEO, Faruk Fatih Özer, made off with $2 billion worth of digital tokens — with the scam affecting people from all walks of life.
The sudden closure of Thodex had a large impact on Turkey’s economy, with ordinary citizens being caught up in the aftermath. Because the country’s fiat currency (the Lira) was losing value and prices were rising, many people decided to safeguard their money through cryptocurrencies — a lot of which was subsequently lost as a result of this scam.
Tornado Cash
A cryptocurrency mixing service, Tornado Cash was used by fraudsters to obscure the trail of funds from their criminal origins. It was even favoured by a sanctioned North Korean cybercrime organisation known as Lazarus Group to launder their stolen funds.
According to the US DOJ, the co-founders of Tornado Cash were charged with crypto money laundering and the violation of certain sanctions. Roman Storm and Roman Semenov were accused in August 2023 of knowingly facilitating more than $1 billion of illegal activity, while publicly claiming to offer a legitimate privacy service.
Silk Road
Once known as the “Amazon of illegal goods”, Silk Road became hugely popular after its launch in February 2011. At one point, the website accounted for over 20% of Bitcoin’s daily trading — highlighting how important the digital token was to illegal online trade.
Two years after it was founded, Silk Road’s founder, Ross Ulbricht, was arrested and charged with multiple offences including money laundering and arranging murders. The arrest even had a short-term impact on Bitcoin’s value, with the price dropping from $140 to $110 before summarily recovering.
Bitcoin Fog
Said to be the longest-running Bitcoin laundering service in the world, Bitcoin Fog is alleged to have handled around $400 million worth of transactions between 2011 and 2021. Much like Tornado Cash, the website was a cryptocurrency mixer that enabled users to move over 1.2 million of the digital tokens during its 10-year lifespan. Its operator, Roman Sterlingov, was convicted in March 2024.
Specialist Support with Cryptocurrency Crime
Having already established itself as a leading name in “traditional” financial fraud defence and forensic accounting investigations, the team at Inquesta Forensic stands ready to assist with all manner of cryptocurrency crime. We have the skills needed to navigate through the complex nature of crypto transactions and provide a thorough assessment of your case.
Whether you’ve been a victim of cryptocurrency fraud, or have been accused of carrying out offences, our team will work tirelessly to protect your interests. We can help at every stage, from conducting an investigation right through to appearing as an expert witness in court, wherever necessary. Get in touch today to find out more.
Disclaimer: This blog is for informational purposes only and does not constitute legal advice. Always consult with a professional for specific advice related to your situation.
