Bitrace Report Examines Money Laundering with Stablecoins

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Ruholamin Haqshanas

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Ruholamin Haqshanas

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Ruholamin Haqshanas is a contributing crypto writer for CryptoNews. He is a crypto and finance journalist with over four years of experience. Ruholamin has been featured in several high-profile crypto...

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December 26, 2023

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A recent report by blockchain researcher Bitrace has shed light on the potential use of stablecoins in money laundering activities. 

The report, published on December 26 and translated by Wu Blockchain, highlighted two distinct scenarios in which stablecoins, specifically Tether (USDT), were employed for illicit purposes.

In the first scenario, known as the “upward” case, bad actors sell stablecoins to money launderers at market prices. 

The launderers then repurchase another stablecoin at an inflated price, with the price difference serving as payment for the laundering services. 

According to the report, illegal USDT transactions may be priced at 8-10 Chinese yuan (RMB), resulting in a profit for the money launderers.

The second scenario, referred to as the “downward” case, involves the use of stablecoins for legitimate purposes on platforms lacking comprehensive Anti-Money Laundering/Know Your Customer (AML/KYC) measures. 

Proxy Payment Platforms are Used for Illicet Activities

Proxy payment platforms, which accept USDT deposits and use fiat funds to facilitate payments on various platforms, are utilized for activities such as online gambling, fund settlements, live broadcasting gifts, e-commerce orders, and employee salaries. 

Due to weak AML/KYC verification on these platforms, stablecoin sellers in these transactions face lower risks of “reverse freezing,” which involves freezing accounts that have received crypto tied to criminal cases. 

As a result, USDT may be sold at a discount of 0.05 to 0.3 RMB in such cases.

Bitrace’s report also highlighted the tracking of frozen USDT by Tether and the OKX platform. 

The criminal group identified in the report utilized well-known cryptocurrency trading platforms like FTX and Binance, as well as OKX, to transfer stablecoins to more centralized trading platforms, payment platforms, and even online gambling platforms. 

Notably, the report emphasized that throughout both the upward and downward scenarios, the criminal group exclusively conducted transactions with stablecoins and remained detached from fiat currencies.

It is worth noting that Tether has recently collaborated with law enforcement agencies and onboarded the U.S. Federal Bureau of Investigation onto its platform. 

Just recently, the company announced it has frozen the wallets of individuals sanctioned by the U.S. Office of Foreign Asset Controls (OFAC). 

“This strategic decision aligns with our unwavering commitment to maintaining the highest standards of safety for our global ecosystem and expanding our close working relationship with global law enforcement and regulators” Paolo Ardoino, CEO of Tether, said at the time. 

“By executing voluntary wallet address freezing of new additions to the SDN List and freezing previously added addresses, we will be able to further strengthen the positive usage of stablecoin technology and promote a safer stablecoin ecosystem for all users.”

While Tether has previously frozen funds associated with illicit activities, the company had been hesitant to freeze wallets interacting with the sanctioned protocol, Tornado Cash. 

Tether claimed that it had not received any requests from U.S. law enforcement to do so.