A report released by Crypto ISAC and Merkle Science on Wednesday reveals that despite the growing popularity of cryptocurrencies, cash remains the top choice for criminals engaging in illicit finance.
According to the report, titled “Blockchain’s Role in Mitigating Illicit Finance,” only 0.34% of crypto transactions in 2023 were flagged as potentially linked to criminal activities. In comparison, an estimated 2% to 5% of global GDP—equivalent to as much as $2 trillion—is laundered annually through traditional financial systems.
Criminals Still Prefer Cash Over Crypto for Illicit Finance
While cryptocurrency often faces intense scrutiny for its potential misuse, the report highlights that traditional financial systems pose a far greater risk when it comes to money laundering and other illegal financial activities.
Robert Whitaker, director of law enforcement affairs at Merkle Science, explained that U.S. crypto exchanges are subject to strict know-your-customer (KYC) and anti-money laundering (AML) regulations. He pointed out that crypto’s public, immutable ledger makes it easier for authorities to trace and de-anonymize illegal transactions.
In contrast, cash transactions remain difficult to trace, making them the preferred choice for criminals.
Stablecoins Show Minimal Links to Illicit Finance
The report also explored the use of stablecoins, which are often suspected of being used for illicit finance. However, the findings indicate that stablecoins show very low levels of suspicious activity. From July 2021 to June 2024, only 0.61% of Tether’s USDT and 0.22% of Circle’s USDC transactions were flagged as potentially linked to illicit finance.
Global Cooperation Is Key to Combating Illicit Finance
Despite the relatively small percentage of suspicious crypto transactions, the report calls for continued international cooperation to tackle illicit activities in the cryptocurrency space. This is particularly crucial as many offshore exchanges operate beyond the reach of U.S. regulations.
The U.S. Treasury’s 2024 risk assessment found that virtual assets pose a smaller threat to money laundering compared to fiat currency, reinforcing the view that cash remains the dominant medium for criminal financial activity.
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