Typologies in focus: the threat of crossover crime

As the crypto industry continues to diversify, bad actors are taking advantage of new technologies to launder their illicit funds and overcome legacy blockchain analytics solutions.

In particular, cross-asset and cross-chain crime has grown exponentially, with criminals using decentralized exchanges (DEX), cross-bridges and decentralized finance (DeFi) mixers to disguise the source of their funds. This makes it difficult for organizations to detect exposure to illegal activity and potentially leaves them vulnerable to engagement with high-risk or sanctioned entities.

What is cross crime?

Cross-chain crime is the act of anonymously moving cryptocurrencies between assets and the blockchain to conceal their illicit financial flows. Given that at least $7 billion worth of illegal cryptocurrencies have already been laundered with these funds, the need to address cross-chain issues is growing by the day.

An example

A criminal uses a cross-chain bridge to move illegal assets on one blockchain to a completely different blockchain. This is known as a “jump chain”.

Cross crime typologies and red flags to look out for

The matrix below shows the different ways cross crime can be committed and the associated red flag indicators.

If you would like to see a full list of cryptocrime typologies and their associated red flags, download our Cryptoasset Risk Assessment Matrix.

How cross crime threatens your business

As traditional blockchain analytics providers can only trace the flow of funds through a single blockchain without manual intervention, cross-chain capabilities easily empower criminals to obscure transaction traces and make investigations much more difficult and time-consuming.

This is particularly problematic for organizations that deal with a high volume of transactions, as the necessary checks are usually laborious, inconvenient and require significant specialist research resources.

With this in mind, multi-chain crime presents both a major challenge of potential exposure to your business and a resource constraint for your compliance team, as they are forced to invest their time tracking the flow of payments through the blockchain using very manual tools. .

The example below highlights how sanctioned entities can use cross-bridges to bypass traditional blockchain analytics systems and potentially expose your business.

As you can see, in this case the sanctioned entity exchanges its illicit Bitcoins via a cross-chain bridge for Tether. This Tether is then moved to an exchange without marking its sanctioned origin as it has been audited for illegal exposure using traditional chain-centric blockchain analytics that cannot be traced beyond the bridge.

How to protect your organization from cross-crime with Elliptic’s Holistic Screening

To effectively protect against cross-chain crime, you need a block analysis solution that can track transaction flows through every wallet across all major blockchains and cryptoassets simultaneously, providing a “holistic” view of illegal activity.

This is where holistic screening can help. By providing multi-asset screening, cross-asset tracking and cross-chain screening programmatically and at scale, our holistic capabilities are fundamental to mitigating the obfuscation potential of bad actors using DEXs or cross-bridges.

In this section, we’ll explore each of these components of holistic screening and how they work to protect your business from illegal exposure.

Screening of multiple assets

When you review a wallet, you need to be able to immediately identify the risk based on all the assets it has interacted with. This is where multi-asset verification comes into play. With a chain-wise approach to compliance, you can unlock operational efficiencies and significantly improve your ability to identify risks.

How does it work

The criminal has a wallet that is active on multiple blockchains and also trades multiple Ethereum assets.

When Elliptic inspects a wallet, activity on all blockchains and all associated Ethereum assets is evaluated in parallel.

This ensures that the full picture is taken into account and that all risk factors are automatically taken into account when assessing a wallet’s risk profile.

Cross asset tracking

When investigating potentially illicit funds, you need to be able to determine their flow, source and destination, even when there is a change in the crypto-asset, for example the exchange of Shiba Inu for Dogecoin.

Cross asset tracking ensures you can do this with ease, so when a criminal uses DEX or wrapped assets to cover their tracks, you can still track the money immediately.

How does it work

Let’s say a criminal entity wants to cash out their ETH, but is thwarted when an exchange using Elliptic sees a connection between the chain and the theft.

Assuming that DEX would solve their problems, the criminal trades their tainted ETH for SHIB and moves the SHIB to a fresh new wallet.

They then try to cash out their new SHIB, but the exchange using Elliptic keeps rejecting them because they can still detect the corrupted funds via DEX.

In this case, the entity is stuck because the exchange takes a completely holistic view of risk, preventing exposure to illicit funds and preventing a criminal from successfully profiting from their illegal activities.

Cross chain tracking

When you review funds, you need to be able to track their flow, source and destination, even when the blockchain changes. For example, when a user transfers their cryptocurrency from the Bitcoin blockchain to Ethereum.

Cross-chain tracking helps you do just that and ensures that when a criminal uses a cross-chain to cover their tracks, you can still track the flow of funds immediately.

How does it work

In 2020, a criminal managed to steal some Bitcoin and used a cross-chain bridge to convert it into Ether. They then used some of this ETH to pay off their accomplice for helping with the theft.

When that accomplice tries to use ETH with an organization that uses holistic screening, their exposure to the original criminal’s theft will be flagged, as the system will automatically trace back through the bridge and see that the ETH originated from the stolen BTC.

The value of holistic screening

Holistic screeningThree core features are designed specifically to provide comprehensive protection against crypto-crime exposure and allow you to take a chain-agnostic compliance approach. This helps you protect your business and instantly combat typologies of crime across multiple chains.

As the threat of cross-chain crime continues to evolve, the need for a solution that can provide cross-chain access to compliance is more important than ever. Organizations cannot afford to ignore the cross-chain crime risks posed by their compliance program.

With so much at stake, we’ve built holistic screening to tackle this challenge, including the capabilities you need to verify crypto transactions and wallet chains – agnostic at scale. This ensures that your business can automatically counter potential exposure to bad actors and reduces the burden on your compliance team by minimizing the manual effort required.

Designed with a “screen first and investigate only when needed” philosophy, Holistic Screening gives your compliance team the tools they need to achieve crypto compliance at the highest levels at an unlimited scale.

See for yourself how holistic screening can protect your business from cross-chain crypto crime, sign up for a demo today.

Alternatively, learn more about how holistic screening protects your organization from exposure to illicit funds and sanctioned entities.