Explanation: the cryptocurrency path to money laundering

Are blockchains traceable?

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


How do they hide transaction leads?

One of the most common methods used by hackers and criminals is called mixing or goblet. Since each cryptographic token is traceable, tumblers break down multiple tokens from different blockchains and mix them together. They then transfer the original amount to the owner, but across multiple transactions and from multiple wallets, obscuring the track. Illegal users also transfer traceable tokens to privacy-focused blockchains like Monero, which hide addresses and wallet details. There are also over-the-counter brokers who accept payments in any form, including cash, and transfer the equivalent amount in cryptocurrencies to a user’s wallet.

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Great Cryptocurrency Robbery

What did ED accuse Binance and WazirX of?

Among other things, the ED says WazirX’s holding company, Zanmai Labs Pvt. Ltd, offers “mixed and ambiguous answers” on cryptocurrency transactions made on WazirX. The ED said WazirX failed to provide data and show transactions on its blockchain for purchases made by numerous investigated fintech companies.

How do off-chain transactions work?

When users withdraw cryptocurrencies from an exchange, they enter a wallet address and tokens are transferred, with a record kept on the blockchain. However, they also have to pay a gas tax, which is used to pay miners on the blockchain. To avoid these fees, two platforms can integrate and allow users to transfer cryptocurrencies without using the blockchain. Such transactions can raise questions about the traceability of money, as the records are not kept on the blockchain.

How can exchanges prevent money laundering?

Exchanges could adopt a resolution on KYC data and keep transaction logs for 8-10 years on the blockchain, industry stakeholders have said. Using KYC-compliant wallets could help add a layer of traceability, said Triveni Singh, superintendent of police, cybercrime, Uttar Pradesh police. However, the KYC standards for portfolios held on platforms outside of India may differ from those in India. Some blockchain research firms are also working on machine learning-based tools that can report illicit accounts.

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