How money is laundered using crypto

Money laundering is one of the key charges made by the Enforcement Directorate (ED) against crypto exchange WazirX. The ED isn’t the first agency of its kind worldwide to level such allegations against a crypto platform, despite blockchain’s inherent property of traceability. Many others have. But why? 

Are blockchains traceable? 

Transactions on a blockchain are always traceable. Most courts and law enforcement bodies around the world have recognized their immutable nature and accept blockchain records as legal proof of transaction histories. However, crypto transactions can sometimes happen “off-chain”, or other methods can be used to obfuscate the flow of funds. Moreover, blockchains are like conveyor belts, which facilitate the flow of crypto from one wallet to another. The identity of the person who holds that wallet has to be ascertained by the wallet service provider and this is often not done to protect user privacy.

How do they hide transaction trails? 

One of the most common methods used by hackers and criminals is called mixing or tumbler. As each crypto token is traceable, tumblers break down multiple tokens from different blockchains and mix them. They then transfer the original amount to the owner, but through multiple transactions and from multiple wallets, obfuscating the trail. Illicit users also transfer traceable tokens to privacy-centric blockchains such as Monero, which hide wallet addresses and particulars. There are also over-the-counter brokers who accept payments in any form, including cash, and transfer the equivalent amount in crypto to a user’s wallet.

What has ED accused Binance and WazirX of? 

Among other things, the ED claims that WazirX’s holding company, Zanmai Labs Pvt. Ltd, is offering “contradictory and ambiguous answers” about crypto-to-crypto transactions made on WazirX. The ED said WazirX had failed to provide data and show transactions on its blockchain for purchases made by numerous under investigation fintech firms.

Read the full story on Mint.