In our previous article, we discussed the various ways in which Open Source Intelligence (OSINT) can be used to trace illicit financial activities such as money laundering and terrorist financing. As we discussed in the article, one of the most prevalent methods of transferring illicit funds in the modern world is through the use of cryptocurrency, popular among criminal actors for its relative anonymity. That said, tracing such activity is not completely impossible.
Essentially cryptocurrency tracking involves analyzing transactions on blockchain networks to trace the flow of funds and identify parties involved in financial activities, including potential money laundering or terrorist financing. There are several ways in which investigators can do this, using some of the key tracking techniques and relevant tools outlined below:
Blockchain Explorer Tools
Bitcoin explorer tools such as Blockchair and Blockchain.info allow users to explore Bitcoin transactions, view transaction histories, and trace the movement of funds between addresses. Such methods are not exclusive to Bitcoin, and similar tools exist for other cryptocurrencies such Ethereum (Etherscan) and Blockchair's 'Litecoin Explorer'.
Address Clustering
Crystal Blockchain is a tool that helps in clustering addresses, identifying wallet ownership, and tracking funds through complex transaction networks. It can reveal relationships between different addresses, helping investigators understand the flow of funds.
Transaction Analysis Tools
CipherTrace provides transaction tracing and analysis services for various cryptocurrencies. It assists in identifying high-risk transactions, suspicious patterns, and illicit fund flows across different blockchain networks.
KYT (Know Your Transaction) Tools:
Chainalysis offers KYT solutions for monitoring transactions on various blockchains. It helps businesses and financial institutions comply with regulatory requirements by identifying and flagging potentially risky transactions.
Cryptocurrency Mixers and Tumblers:
Taint analysis helps trace the origin and destination of funds, especially when users attempt to obfuscate their transaction history through mixers or tumblers. Analyzing the taint of funds can reveal connections between addresses.
Pattern Recognition:
Elliptic provides tools for analyzing blockchain data and identifying patterns associated with illicit activities. It uses machine learning algorithms to detect suspicious transactions and relationships.
Regulatory Compliance Platforms:
Coinfirm offers solutions for regulatory compliance in the cryptocurrency space. It helps businesses and financial institutions ensure compliance with anti-money laundering (AML) and counter-terrorist financing (CTF) regulations.
Exchange Monitoring:
Whale Alert tracks large transactions on various blockchains, providing real-time alerts for significant fund movements. Monitoring these transactions can help identify potential money laundering activities.
Risk Scoring:
Scorechain provides risk scoring for cryptocurrency transactions. It assesses the risk associated with different addresses, enabling investigators to focus on high-risk transactions and entities.
Collaboration with Law Enforcement:
Cryptocurrency tracking often involves collaboration with law enforcement agencies that may have access to specialized tools and expertise. Agencies like the U.S. Internal Revenue Service (IRS) and the Federal Bureau of Investigation (FBI) have developed capabilities for investigating cryptocurrency-related crimes.
It is important to keep in mind that the cryptocurrency landscape is relatively young and especially dynamic, with new tools and techniques continually emerging. As the technology evolves, so too do the tools and methods used in cryptocurrency tracking. Furthermore, cryptocurrencies themselves are not all the same. The effectiveness of these tools depends on the transparency of the particular blockchain network in question and cryptocurrencies with enhanced privacy features may therefore pose additional challenges for investigators. With that said, we hope that the above will provide a good starting point for analysts and investigators looking to navigate the complex and obscure world of cryptocurrency tracking.
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