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Money Laundering in Cryptocurrencies: Myth vs. Reality
A new relationship from ivezz.com reveals that approximately 2-5% of global GDP is recycled every year, which translates to up to $5.05 trillion by 2024.
Reflecting on these numbers reveals a significant point of analysis: despite the growing focus on cryptocurrencies as a tool for illicit financial activities, their actual share in global money laundering remains minimal. The United Nations Office on Drugs and Crime provides a standard method for estimating money laundering volumes. This approach suggests annual recycling figures of between $2.22 trillion and $5.54 trillion in 2024. However, Chainalysis relationships that only $23.8 billion in cryptocurrencies were laundered in 2022. This amount is only 0.47% of the lower bound of the estimated global money laundering total.
Furthermore, Chainalysis’s 2024 report showed that overall illicit activities are related to cryptocurrency has fallen from $39.6 billion to $24.2 billion last year for a total of 0.34% of on-chain activity. Money laundered through sanctioned entities was also reduced to $14.9 billion, a reduction of nearly 50%.
Illicit Activities in Cryptocurrencies 2023 (Chainalysis)
This proportion highlights that although cryptocurrencies facilitate some money laundering activities, traditional financial systems continue to dominate the landscape. Therefore, these statistics call into question the narrative that cryptocurrency is a main money laundering tool. For example, in the United States, approximately $300 billion is laundered each year, which represents a larger share of the country’s GDP than the $23.8 billion attributed globally to cryptocurrency laundering.
Attention to cryptocurrencies, while growing, reflects a relatively small segment of overall money laundering activity. While the increase in cryptocurrency-related money laundering by 68% over the previous year highlighted its growing use, it has since declined and remains a fraction of the full spectrum of illicit financial flows. Similarly, in the UK, over £100 billion is laundered every year, in stark contrast to the global figure for cryptocurrency laundering.
Furthermore, traditional financial systems are still characterized by significant money laundering activities. Data from the U.S. Department of the Treasury and other country-specific studies reveal that banking and payment systems remain primary conduits for illicit funds. For example, Germany sees around 100 billion euros recycled every year across various sectors, including real estate and art dealers, sectors with relatively low awareness of anti-money laundering measures.
In Russia, dark money stashed overseas is estimated at $1 trillion, demonstrating the scale of traditional money laundering mechanisms compared to relatively minuscule cryptocurrency-related assets. Annual recycling figures in China amount to approximately $154 billion, further illustrating the dominant role of conventional systems.
Furthermore, global money laundering risk assessments reflect current challenges. The Basel Institute of Governance points to slow improvement in mitigating these risks, underlining the need for robust supervisory frameworks and better prosecution of money laundering cases.
Therefore, the latest analysis from invezz.com highlights that while the role of cryptocurrencies in money laundering cannot be ignored, its impact is relatively minor in the broader context of global financial crimes. The report states,
No matter where you live, criminals launder up to 5% of the GDP you produce and hide it. Money laundering steals the taxes you pay, making the rich richer and the poor poorer.”
Understanding these forces is critical to developing effective anti-money laundering strategies that encompass both traditional and emerging financial systems and to effectively evaluating popular narratives surrounding digital assets.
Posted in: European Union, UK, WE, Analyses