- Alexandre PAMART
Illicit flows and cryptocurrencies
Dernière mise à jour : il y a 5 jours
As per OECD, Illicit Financial Flows (IFFs) are defined as : « all cross-border financial transfers which contravene national or international laws ».
Below content is produced by Alexandre PAMART in the context of the PhD thesis prepared at CEDS and part of the thesis. All rights belong to the author (Alexandre PAMART) and Institut Talleyrand
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These illicit financial flows stem from transnational organized crime, terrorism, sanction breaches, corruption, fraud... IFFs are a major challenge for the international community as they sustain instability (on a social, political, environmental and financial point of view). These flows also hinder the implementation of Sustainable Development Goals to build a peaceful world.
Transparency and immutability of blockchain allow sophisticated tools to estimate the amount of illicit flows. On the opposite, such estimates are more complex to assess in the real world. Chainanalysis, a renowned blockchain analysis firm, indicated in its 2023 edition of Crypto Crime Report that illicit transactions volume rose to a lower estimate of USD 20.6 billions, representing 0.24% of total crypto transactions (vs USD 18 bn in 2021, representing 0.12% of the total USD 15.8 trillions crypto transactions in 2021). The higher percentage of illicit flows in crypto for year 2022 is mostly driven up by sanction exposures. Indeed, 43% of illicit transactions are due to some cypto exchanges based in Russia which continue to process transactions. Most other forms of illicit activities through blockchain decreased compared to previous year : terrorism financing, darknet market places etc.
In comparison, UNODC estimates that 2% to 5% of the global GDP is linked to money laundering…hence the virtual world presents a ratio of illicit flows / total flows far below the real world. The virtual world seems much more transparent than the real world, though risks related to cryptocurrencies, NFTs etc need to be carefully scrutinized and not played down.
Do cryptocurrencies guarantee anonymity ?
How investigators / justice can find a physical person identity ?
Cryptocurrencies are not anonymous but used pseudonyms. Each transaction and details (address of the sender, address of the receiver, amount) are stored on the immutable blockchain. Though, there is no such a directory which match an ID card of a physical person to a cryptocurrency address.
• Centralized exchanges often perform KYC and ask for information to know their customers, linking a name, ID card etc to the crypto address in case of investigation by authorities. Hosted wallet services providers also collect information about customers. Both kind of services can be contacted by the justice to know who is hiding behind an address.
• Online research could help matching an address with a name, as some users publish their address on forum, website and give some details to help identify them.
• Blockchain can be checked with blockchain explorer services (which can target a specific address suspected of laundering and reveal the other address connected with the suspect). This is useful when one suspect of a network is identified and when its phone, conversation reaveled some crypto data such as address, amount…then the other culprits of the network might be identified through transfers operated and visible on blockchain.
• Some purchases are processed with cryptocurrencies in shops. The shops might ask some real world details to deliver a product (physical address, name) or information to contact the customer (phone number, email…).
Alexandre PAMART, Compliance Specialist, PhD program at CEDS Paris
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Bibliography
UNODC, Overview of money laundering
https://www.unodc.org/unodc/en/money-laundering/overview.html
Chainanalysis, Crypto Crime Report 2023
https://go.chainalysis.com/2023-crypto-crime-report.html
Chainanalysis, Crypto Crime Report 2023
https://go.chainalysis.com/2022-crypto-crime-report.html
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