Cryptocurrency Laundering on the Dark Web

Cryptocurrency Laundering on the Dark Web is a terrifying and growing problem. The combination of an encrypted network hidden from most of the world and a transactional currency that is nearly impossible for law enforcement to track opens a Pandora’s Box of criminals buying and selling illicit goods in an environment where anonymity is paramount. Bitcoin is a particularly popular choice in this environment, but other cryptocurrencies are also being used for this purpose.

The Dark Web’s underlying technology, the Tor network, makes it extremely difficult to trace the identity of those using it. While protecting political dissidents, privacy advocates, and whistleblowers should be a primary focus of the internet’s governance, empowering child abusers, arms traffickers, and drug lords is no justification for allowing such people to hide their tracks on the Dark Web. The international community has made significant progress over the past several years in this area, improving information sharing and sharpening law enforcement’s technical capabilities to take down major illicit marketplaces.

However, the threat continues to evolve as cybercriminals seek new ways to cover their tracks and continue to adapt their tools. This article analyzes some of the existing digital anonymity technologies, such as TOR and the underlying cryptocurrency Bitcoin, and how they impact the process and facilitation of money laundering.

One of the more obvious methods is to buy and sell cryptocurrency on an exchange. While the majority of cryptocurrency exchanges are regulated, operate legally, and comply with anti-money laundering regulations, there are plenty that do not. This leaves criminals with fewer and fewer options for cashing out their proceeds without being identified.

Another method involves cryptocurrency gambling and gaming websites. These online platforms allow users to purchase virtual credit or chips with a cryptocurrency, which can then be cashed out for a corresponding amount of cash. This method gives criminals a plausible explanation for the origin of their funds right away: they were earned from playing games.

A third and possibly the most lucrative method is to use a tumbler, or “mixer.” These services offer full anonymity to their customers by combining multiple crypto transactions into a single wallet, then redistributing the funds to multiple recipients at random intervals, and in various increments. This technique, called “chain hopping,” is used to obscure the original source of funds.

Whether or not the above techniques work, a successful money laundering investigation starts with documentation. Fortunately, there are software solutions available that can help investigators document cryptocurrency transactions and match them to blockchain records in order to prosecute criminals for money laundering activities. If the cryptocurrency is mined, the evidence may even be able to link the mining device used to create it with an individual’s computer. While these devices might not look like traditional desktop computers, they often have a similar appearance, consisting of a series of rectangle boxes connected to fans and individual CPUs. To avoid being caught, miners should install security software to prevent malware or adware from sneaking onto their system and monitoring their activity.