LONDON, Jan 12 (Reuters) – Illegal use of cryptocurrencies reached a record $20.1 billion last year as transactions involving companies targeted by U.S. sanctions surged, data from blockchain analytics firm Chainalysis showed on Thursday.
The cryptocurrency market faltered in 2022, as risk appetite decreased and various crypto companies failed. Investors were left with heavy losses, and regulators stepped up calls for greater consumer protection.
While overall crypto transaction volumes fell, the value of crypto transactions linked to illicit activity rose for the second year in a row, Chainalysis said.
Transactions linked to sanctioned entities grew more than 100,000 times in 2022 and accounted for 44% of last year’s illegal activity, Chainalysis said.
Funds received by Russian exchange Garantex, which was sanctioned by the US Treasury Department in April, accounted for “a large portion of the illicit volume in 2022,” Chainalysis said, adding that most of the activity was “probably Russian users using the Russian exchange.” A spokesperson for Chainalysis said that wallets are marked as “illegal” if they are part of a sanctioned entity.
Garantex did not immediately respond to an emailed request for comment.
The United States also last year imposed sanctions on cryptocurrency mixing services Blender and Tornado Cash, which it said were being used by hackers, including from North Korea, to launder billions of dollars worth of the proceeds of their cyber crimes.
The volume of crypto assets stolen rose 7% last year, but other illegal crypto transactions, including those related to fraud, ransomware, terrorist financing and human trafficking, saw volume decline.
“The market decline could be one of the reasons for this,” Chainalysis said. “In the past, we’ve found that crypto scams, for example, generate less revenue during bear markets.”
Chainalysis said its $20.1 billion estimate includes only activity recorded on the blockchain, and excludes “off-chain” crime, such as fraudulent accounting by crypto companies.
The figure also excludes cases where cryptocurrencies are the proceeds of non-crypto-related crimes, such as when cryptocurrency is used as a means of payment in the drug trade, Chainalysis said.
“We must emphasize that this is a lower-bound estimate – our measure of the volume of illegal transactions will certainly increase over time,” the report said, noting that the 2021 figure was revised to $18 billion from $14 billion as more fraud was discovered .
Reporting by Elizabeth Howcroft Editing: Tomasz Janowski
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