New Study Finds Only 0.3% Of Crypto Transactions Flagged As Illicit, Cash Remains King

A recent study has found that despite the long-held belief that crypto assets facilitate criminal activity, perpetrators still overwhelmingly prefer cash for their illicit transactions. 

This revelation, published by Fortune and sourced from the Crypto Information Sharing and Analysis Center (CryptoISAC), challenges the narrative that digital assets are the first choice for criminal organizations such as Hamas.

TradFi Systems Estimated To Launder Up To $2 Trillion Annually

The study, “Blockchain’s Role in Mitigating Illicit Finance,” was developed in collaboration with Robert Whitaker, the director of law enforcement affairs at Merkle Science and a former supervisory special agent at the Department of Homeland Security. 

According to Whitaker, “Cash will always be king because of its true anonymous nature,” highlighting the difficulties law enforcement faces when tracing cash transactions compared to those conducted on the blockchain.

For years, cryptocurrencies have been viewed as a breeding ground for illicit activities, particularly following high-profile incidents like the collapses of FTX and the Silk Road marketplace. However, data from CryptoISAC and blockchain analysis firm Chainalysis suggests this perception may be skewed.

The report indicates that only 0.34% of total on-chain crypto transaction volumes were flagged as potentially illicit in 2023, a decrease from 0.42% in 2022. By contrast, traditional financial systems (TradFi) are estimated to launder between 2% and 5% of global GDP yearly, equivalent to between $800 billion and $2 trillion.

Whitaker pointed out that US crypto exchanges must adhere to strict compliance measures, including know-your-customer (KYC) and anti-money laundering (AML) regulations. 

These requirements make tracing transactions on the blockchain significantly easier, which can serve as a deterrent for criminals. “It’s law enforcement friendly in the sense that it has an immutable ledger behind it that is public,” he explained.

Whitaker Urges Tailored Regulations For Crypto

The report also highlights that even stablecoins, often thought to be favored by crypto criminals due to their stability, are rarely involved in illicit transactions. Between July 2021 and June 2024, only 0.61% of transactions involving Tether’s USDT and 0.22% of Circle’s USDC were flagged as potentially illicit.

The US Department of Treasury supports these findings, asserting in its 2024 money laundering risk assessment that “the use of virtual assets for money laundering remains far below that of fiat currency.”

The report also emphasized the need for international cooperation to combat national security threats, particularly since much illegal digital asset activity occurs on offshore exchanges outside US regulations.

Whitaker advocates for tailored legislative solutions that address the unique aspects of cryptocurrencies, stating, “Quit trying to stuff crypto, a round peg in a square hole called fiat-currency regulation.” He urges policymakers to take decisive action to regulate the space effectively.

As concerns about national security issues, such as the financing of terrorist organizations and sanctions evasion, continue to rise, Whitaker emphasizes the urgency of addressing these challenges. “The longer we take and ignore the problem, the more we allow illicit actors to benefit from this space,” he cautions.

Featured image from DALL-E, chart from TradingView.com