Andrea Gacki, Director of the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC), appears on screen during the Chainalysis Links conference on Thursday, May 19, 2022 in New York, USA.
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Although last year's numbers are currently down from the previous year, Chainalysis has shown that a significantly higher proportion of funds are attributable to sanctioned or terrorist-related recipients, accounting for approximately 61.5% of total illicit transactions in 2023. He pointed out that there was.
“Actors targeted by sanctions are often cut off from the international traditional financial system, and cryptocurrencies are used to store funds, “It may be tried as an alternative method for sending and receiving money.”
Cryptocurrency “mixers” companies such as Tornado Cash and Galantex accounted for the bulk of illicit funds in 2023. Tornado Cash was sanctioned in August 2022 for its involvement in laundering cryptocurrencies stolen by the North Korean hacking organization Lazarus Group. Russia-based exchange Garantex was sanctioned in April 2022 for its ties to illegal actors, including ransomware groups.
A crypto mixer is software that obfuscates the history and origin of digital assets transmitted through it.
The amount of cryptocurrencies transferred to sanctioned entities has increased in recent years, in parallel with an increase in the proportion of new transaction restrictions that designate crypto wallets.
In 2023, the U.S. Office of Foreign Assets Control sanctions list imposed a total of 18 new sanctions against individuals and entities, including associated crypto wallets.
At least nine of the new sanctions were against individuals and entities in China and Latin America suspected of being involved in the production and trafficking of fentanyl. Meanwhile, five of the sanctions targeted companies deemed to have violated sanctions against North Korea.
The top recipient of cryptocurrencies added to the sanctions list last year was Sinbad.io, a Bitcoin mixer that was shut down in November 2023 and received $665.4 million in cryptocurrencies from Lazarus Group.
Still, it shows that sanctions can slow the flow of crypto funds to targets. According to Chainalysis, Tornado Cash's monthly inflows decreased by up to 93% immediately after its U.S. listing. However, the company noted that inflows gradually recovered from that low in the following months.
According to Chainalysis, Iran is the leading recipient of illicit funds among sanctioned countries, with 73.3% of its inflows coming from international mainstream exchanges, whose services are used to subvert sanctions. This shows that it is possible.
The volume of illicit cryptocurrencies identified by Chainalysis as terrorist financing accounted for a much smaller proportion in 2022 compared to transactions to sanctioned entities.
Chainalysis argued that, contrary to popular belief, cryptocurrencies are not effective tools for terrorist financing, as blockchain allows funds to be tracked at a level of detail not normally possible with traditional finance.
“The combination of cryptocurrency transparency and blockchain analysis provides a valuable forensic tool that allows governments to identify, track, and block the flow of funds. That’s not possible with cash,” Chanalysis’s Fiermann said. .
Despite these obstacles, terrorist organizations continue to seek to use cryptocurrencies for financing, deploying complex networks of crypto exchanges and service providers, the report said.
Last year, millions of dollars in funds were seized as a result of a tracing operation. In one such incident, Israel's National Counter-Terrorism Financing Agency in June reported that 1.7 million yen, linked to Hezbollah and Iran's Quds Force, was collected through a Syria-based financial intermediary named Tawfik Muhammad Saeed Alrou. It was announced that the US dollar virtual currency had been seized.
The Chainalysis report reveals how Al Roo relied on a network of legitimate mainstream exchanges for crypto trading and an extensive network of wallets to support Hezbollah's crypto financial infrastructure. Outlined.
Wallets linked to Al-Law received crypto funds ranging from millions to over $1 billion in total, with up to tens of thousands of transfers made.
Meanwhile, groups and individuals associated with designated terrorist organizations such as ISIS and Hayat Tahrir al-Sham continue to solicit cryptocurrencies through crowdfunding efforts.
But efforts to track and seize these funds are becoming increasingly sophisticated, Fiermann said.
“The data also shows that as the adoption of cryptocurrencies by illegal actors continues to increase, sanctioning bodies like OFAC are continually evolving the ways they identify these actors and thwart their activities. “It shows,” he added.
In another example cited in the Chainalysis report, Hamas' military wing, the al-Qassam Brigades, decided last year to stop accepting crypto donations due to the risk of potential donors being tracked. Announced. This follows reports that Hamas received large amounts of cryptocurrencies ahead of the October 7 attack on Israel.
Chainalysis said in the report that while terrorist financing is a “small portion” of illicit cryptocurrency activity, it still poses an “ever-present concern” to the ecosystem.
He added that stronger public-private partnerships are needed to strengthen these efforts and differentiate between illegal actors and funds sent to conflict areas for legitimate purposes.
