Bitcoin money laundering: mixed results?. An explorative study on money laundering of cybercrime proceeds using bitcoin
| DOI | https://doi.org/10.1108/JFC-11-2016-0067 |
| Published date | 08 May 2018 |
| Date | 08 May 2018 |
| Pages | 419-435 |
| Author | Rolf van Wegberg,Jan-Jaap Oerlemans,Oskar van Deventer |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial crime |
Bitcoin money laundering:
mixed results?
An explorative study on money laundering of
cybercrime proceeds using bitcoin
Rolf van Wegberg
Technische Universiteit Delft, Delft Netherlands, TNO, The Hague,
The Netherlands
Jan-Jaap Oerlemans
Netherlands Ministry of Security and Justice, The Hague, The Netherlands, and
Oskar van Deventer
TNO, The Hague, The Netherlands
Abstract
Purpose –This paper aims toshed light into money laundering using bitcoin. Digitalpayment methods are
increasinglyused by criminals to launder money obtained throughcybercrime. As many forms of cybercrime
are motivated by profit, a solid cash-out strategyis required to ensure that crime proceeds end up with the
criminals themselves withoutan incriminating money trail. The authors examine how cybercrimeproceeds
can be launderedusing services that are offered on the Dark Web.
Design/methodology/approach –Focusing on service-percentages and reputation-mechanisms in
underground bitcoin laundering services, this paper presents the results of a cash-out experiment in which
five mixing and fiveexchange services are included.
Findings –Some of the examined services provide an excellent, professional and well-reviewed service
at competitive cost. Whereas others turned out to be scams, accepting bitcoin but returning nothing in
return.
Practical implications –The authors discuss what these findings mean to law enforcement, and how
bitcoin launderingchains could be disrupted.
Originality/value –These cash-out strategies are increasingly facilitated by cryptocurrencies,
mainly bitcoin. Bitcoins are already relatively anonymous, but with theriseofspecialised bitcoin money
laundering services on the Dark Web, laundering money in the form of bitcoins becomes available to a
wider audience.
Keywords Cybercrime, Money laundering, Bitcoin, Bitcoin mixer, Dark Web
Paper type Research paper
© Rolf van Wegberg, Jan-Jaap Oerlemans, Oskar van Deventer. Published in TheJourn al of Financial
Crime. Published by Emerald Publishing Limited. This article is published under the Creative Commons
Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works
of this article (for both commercial and non-commercial purposes), subject to full attribution to the original
publication and authors. The full terms of this licence may be seen at http://creativecommons.org/licences/
by/4.0/legalcode
The authors are thankful to Willem Pino for his contribution to the Numisight analysis on the
included bitcoin mixers in the experiment. Likewise, the authors would like to thank Michel van
Eeten, Bram Klievink and Thijmen Verburgh for their valuable input on earlier versions of this
paper.
Bitcoin money
laundering
419
Journalof Financial Crime
Vol.25 No. 2, 2018
pp. 419-435
EmeraldPublishing Limited
1359-0790
DOI 10.1108/JFC-11-2016-0067
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1359-0790.htm
1. Introduction
Nowadays, cryptocurrencies–like bitcoin –are commonly used in a variety of cybercrimes.
Bitcoins are used in both:
(1) cyber enabled crime, i.e. crimes that are enabled by computers and the Internet
(such as hacking and malware); and
(2) cyber assisted crime, i.e. criminal behaviours in which computers and the Internet
assist in committing crimes (such as drug trade on online forums) (McQuade, 2002;
Burden and Palmer, 2003).
In both types of cybercrime, bitcoin can be seen as an enabler of the digital criminal
enterprise. The main instigators of their popularity among cybercriminals is that they are
straightforward to use, relatively anonymous, and their use is unimpeded by borders or
legislation (Shcherbak, 2013;Bryans, 2014). Steadily, bitcoin has proven itself to be a vital
part of the criminal enterprises. For instance, ransomware victims are pressed to exchange
the ransom from fiat currency to bitcoin and transfer this amount to a specific bitcoin
address that is provided by the criminals.On underground markets, large amounts of goods
and services –like drugs, weaponsand DDoS-attacks –are bought and sold using bitcoin as
method of payment. In online undergroundmarkets, bitcoins are therefore to be seen as the
preferred currency of criminals (Motoyama et al., 2011;Sood et al., 2013;Moore and Rid,
2016). And recently, criminalsstart to embrace bitcoin as a partner in their cash-out strategy
and launder money aidedby bitcoin (Möser et al., 2013).
Criminals need a solid cash-out strategy to launder cybercrime proceeds, in this case
bitcoin, without getting connected to the associated crime (Levi, 2015). A cybercriminal
seldom starts his cash-out with bitcoins. Usually, his cybercrime proceeds exist of fiat
currency, such as euros or dollars. Regardless of the source, nature and size of the
cybercrime proceeds, the bitcoinecosystem is used as part of the anonymisation or layering
process a cash-out strategyentails. Already upon exchanging these proceeds forbitcoin, the
money trail becomes obfuscated(Europol, 2015c).
On the Dark Web, services are being offered to anonymize bitcoins even further, by
mixing them, or in this case –launder them. Two key components in this “bitcoin
laundering”are bitcoin mixers and bitcoin exchanges (Moore and Christin, 2013;Möser
et al., 2013;Christopher, 2014;Brenig et al.,2015). Bitcoin mixing services are services that
aim to disassociate bitcoins from their often-criminal source. Bitcoin exchange services are
services that aim to anonymously convert bitcoins to spendable money. In this paper, we
focus on the use of the cryptocurrency bitcoin facilitating the cash-out and laundering of
cybercrime proceeds.
Until now, there is little experimental, empirical research into the working of these
bitcoins mixers, let alone explorativeresearch into its usability for cash-out strategies. Only
Möser et al. (2013) tested five bitcoin mixers to analyse their technical method of operation.
But how do you identify and select a reputable service? And what percentageof your crime
proceeds do you “lose”in the launderingprocess? To answer those and similar questions, we
set-up an experiment that in addition to testing the mixers itself, illustrates a cash-out
strategy using bitcoin mixers. The experiment will allow us to further determine the
likeliness of integration of these potential criminal strategies in an actual criminal scheme.
Doing so, we were able to analyse these cash-out strategies, as it would provide an
opportunity to study how the different elements of such a strategyare connectable and how
they operate together as a (successful)cash-out strategy.
The goal of this paper is not only to test the method of operation of bitcoin mixers but
also to make a first attempt to identify the usability of these mixers in a cash-out strategy.
JFC
25,2
420
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