Bitrace report zeroes in on stablecoin money laundering methods
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Bitrace report zeroes in on stablecoin money laundering methods

Illegally obtained stablecoin may sell at a premium or a discount, depending on how it is being laundered.

Bitrace report zeroes in on stablecoin money laundering methods

Money laundering is sometimes a source of deviation in stablecoin prices, blockchain researcher Bitrace has found in an examination of transactions with Tether


$1.00 . Depending on circumstances, money launderers may trade USDT at above- or below-market prices.

In a translated report that Wu Blockchain published on Medium on Dec. 26, Bitrace outlined two scenarios for using stablecoins for money laundering. In the “upward” case, a stablecoin is sold by bad actors to money launderers at market price and then another stablecoin can be repurchased by the bad actors at an inflated price, with the difference serving as payment for the laundering services.

Illegal USDT transactions may price the stablecoin at 8-10 Chinese yuan (RMB), the report stated. At the time of writing, 7 RMB is trading for 0.98 United States dollars.

In illegal “downward” transactions, the stablecoin is used for legitimate purposes on other platforms that lack comprehensive Anti-Money Laundering/Know Your Customer (AML/KYC) measures:

“Some proxy payment platforms accept USDT deposits and use fiat funds to help users make payments on other platforms, including topping up on online gambling platforms, settling member funds for fund platforms, giving gifts on live broadcasting platforms, placing orders on e-commerce platforms, and even paying salaries to employees.”

Because of the weak AML/KYC verification, “downward” stablecoin sellers run smaller risks of “reverse freezing,” which is the practice of freezing accounts that receive crypto tied to a criminal case. In these cases, USDT may be sold with a discount of 0.05 to 0.3 RMB.

Bitrace tracked USDT frozen by Tether and the OKX platform as an illustration. The criminal group identified used “well-known cryptocurrency trading platforms like FTX and Binance” as well as OKX and transferred the stablecoin to “more centralized trading platforms, payment platforms, and even online gambling platforms.”

Bitrace tracked transactions with illegally obtained USDT. Source: Wu Blockchain, Medium

The report noted that in both the upward and downward scenarios, the criminal group does all its transactions with stablecoins and is not exposed to fiat.

In the United States, Article 12 of the Uniform Commercial Code, which is currently in the process of adoption by state legislatures, would protect users’ claims to digital assets they accepted in good faith, even if the assets were previous linked to criminal uses.

Bitrace noted that Tether has onboarded the U.S. Federal Bureau of Investigation onto its platform as part of its collaboration with law enforcement. Bitrace originally released the report on Dec. 17.

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