What is Money Laundering? Why Is It Easy to Use U for Money Laundering in the Crypto World?

What is money laundering? Money laundering refers to the process of disguising illegally obtained funds through various methods to make them appear as legitimate income. The main goal is to hide the true source of funds so illegal assets look legitimate.

Three stages of money laundering:

1. Placement stage: introducing illegal funds into the financial system, such as through bank deposits or asset purchases.
2. Layering stage: distributing funds through multiple transactions, international transfers or virtual assets to break the link with the illegal source.
3. Integration stage: reinvesting cleaned funds into the legal economy, such as buying property or investing in businesses.

Why is USDT easily used for money laundering? As the most widely used stablecoin in the crypto world, USDT (Tether) has become a popular tool for money laundering due to its high liquidity, anonymity, and convenience for international transfers.

Analysis of reasons:

1. High liquidity

   • USDT is widely used on exchanges, allowing quick conversion to other assets or fiat withdrawals.
   • Its international transfers bypass traditional bank restrictions, making them suitable for quick and hidden movement of funds.

2. Difficult to track

   • USDT addresses aren’t typically linked to real individuals unless users complete identification (KYC) through regulated exchanges.
   • Mixing tools complicate tracking trade routes.

3. Regulatory gaps

   • Some exchanges don’t implement KYC and anti-money laundering (AML) policies.
   • Person-to-person (P2P) trading doesn’t require going through exchanges, increasing the secrecy of money laundering.

4. Large trading volume hides anomalous transactions

   • Daily trading volumes in tens of billions make it difficult to detect individual suspicious deals.
   • Money launderers use large USDT transfers, then withdraw them in parts, further hiding the source of funds.

5. International nature

   • Bypassing currency restrictions: USDT provides a channel to circumvent currency controls.
   • Avoiding bank monitoring: traditional banking systems struggle to control blockchain transactions.

Common money laundering methods

• International transfers: exchanging illegal funds for USDT, transferring through international transactions to another country, then withdrawing fiat.
• OTC platforms: exchanging large sums of USDT for cash or assets through over-the-counter trading platforms, bypassing controls.
• Purchasing high-risk assets: buying altcoins or NFTs with USDT, distributing funds through multiple transactions.
• Wash trading: repeatedly transferring between several accounts to falsify trading records.

Real case warnings Example 1: In May 2024, Lanzhou police successfully uncovered a fraud case involving money laundering through USDT. Ms. Liao was led by her “boyfriend” to exchange 2 million yuan for USDT, which were transferred to a fake financial platform. Police detained 15 suspects, with the case exceeding 35 million yuan.

Example 2: In April 2022, the Ministry of Internal Affairs noted that criminals use exchange platforms to convert illegal funds into USDT, then mask the source through multiple transactions. Law enforcement conducted several major operations, uncovering several large cases.

USDT, with its high liquidity and convenience for international transfers, has become the “tool of choice” for money launderers. However, money laundering activities violate financial order and threaten the development of the crypto industry. With strengthening global controls, anti-money laundering measures for USDT and other crypto assets will likely gradually improve.

Disclaimer: Content contains third-party opinions and is not financial advice. It may contain sponsored content.