One of the unfortunate consequences of being a major player in the cryptocurrency space, especially an exchange, is that there is a strong possibility that your services will be used for illicit actions. The cryptocurrency space is still home to a number of scams and criminal ongoings which can be seen to leak to legitimate businesses involuntarily.
Of course, the counter-argument is that some of the top exchanges – like Binance and Huobi – are so large that they should be on top of their regulation and checks and balances. These big exchanges are held to higher standards of KYC, AMl and other financial balances in order to try and stop the scourge of illicit cryptocurrency actions.
That being said, a recent study from Chainanalysis has shown that Binance and Huobi, which are in the top reaches of cryptocurrency exchanges, have seen over a billion dollars worth of illicit cryptocurrency move through them.
Big players in an unfortunate situation
Of course, these two major exchanges are not attempting to lower the barriers to criminal use of cryptocurrency through their operations, but the unintended consequences of being so large could be playing their part.
The study shows that 52 percent of the $2.8 billion in Bitcoin that moved from criminal entities to exchanges came from these two alone. This alone is astonishing given the amount of effort these exchanges have put in monitoring and following illicit Bitcoin.
However, Chainanalysis points out that of the accounts moving the illicit coins, the majority of the funds came from a small portion of accounts.
Overall, just over 300,000 individual accounts at Binance and Huobi received Bitcoin from criminal sources in 2019, but of those, 75 percent of the over $1 billion came from 810 accounts.
An OTC service
The study also goes on to highlight the fact that the majority of the illicit transfers are probably being made over the counter (OTC) which is a trade between two people without the supervision of the exchange, which also explains why it is easier to use these big exchanges, and not be found out.
More so, the study suggests that there could be entire money laundering businesses being operated from some of these illicit wallet addresses. The study further noted that OTC brokers usually have softer KYC standards than other exchanges, which is attractive for criminals:
“The problem, however, is that while most OTC brokers run a legitimate business, some of them specialize in providing money-laundering services to criminals. OTC brokers typically have much lower KYC requirements than the exchanges they operate on. Many of them take advantage of this laxity and help criminals launder and cash out funds, usually first by exchanging Bitcoin and other cryptocurrencies into Tether as a stable intermediary currency before they presumably cash out into fiat,” the study read