Data from blockchain analytics company Chainalysis revealed on Thursday that illegal cryptocurrency use reached a record $20.1 billion last year as transactions involving organizations subject to U.S. sanctions increased sharply.
In 2022, the cryptocurrency market struggled as risk taking decreased and several crypto businesses collapsed. Regulators increased requests for more consumer protection as a result of the significant losses suffered by investors.
Despite a decline in overall crypto transaction volumes, Chainalysis reported that the value of crypto transactions involving illegal activities increased for the second year in a row.
Transactions related with sanctioned companies grew more than 100,000-fold in 2022, accounting for 44% of illegal activity last year, according to Chainalysis.
Funds received by the Russian exchange Garantex, which was sanctioned by the U.S. Treasury Department in April, accounted for “much of 2022’s illicit volume”, Chainalysis said, adding that most of that activity is “likely Russian users using a Russian exchange.” A spokesperson for Chainalysis said wallets are tagged as “illicit” if they are part of a sanctioned entity.
Additionally, the United States placed sanctions on cryptocurrency mixing services Blender and Tornado Cash last year, alleging that they were being used by hackers, including those from North Korea, to launder billions of dollars in gains from their cybercrimes.
While other illicit cryptocurrency transactions, such as those involving frauds, malware, financing terrorism, and human trafficking, witnessed volume decreases last year, the volume of stolen cryptocurrency funds rose by 7%.
“The market downturn may be one reason for this,” Chainalysis said. “We’ve found in the past that crypto scams, for instance, take in less revenue during bear markets.”
Chainalysis said its $20.1 billion estimate only includes activity recorded on blockchain, and excludes “off-chain” crime such as fraudulent accounting by crypto firms.
The figure also excludes when cryptocurrencies are the proceeds of non-crypto-related crimes, such as when cryptocurrency is used as a means of payment in drug trafficking, Chainalysis said.
“We have to stress that this is a lower bound estimate – our measure of illicit transaction volume is sure to grow over time,” the report said, noting that the figure for 2021 was revised to $18 billion from $14 billion as more scams were discovered.