In the complex web of international crime, the common thread that binds North Korean hackers, Mexican drug cartels, Russian mobsters, and scammers impersonating your boss on Telegram, is their reliance on the Chinese black market to launder their billions in cryptocurrencies. This surprising revelation comes from research conducted by blockchain intelligence firm, TRM Labs.
Contrary to the perception of cryptocurrencies as an unregulated, borderless financial underworld, TRM Labs asserts that most major criminal groups involved in digital asset transactions heavily rely on the sophistication of underground Chinese banking networks. The leadership at TRM Labs, boasting decades of federal government experience, believes that U.S. policy has thus far inadequately addressed this issue. The firm contends that the large-scale malicious usage of digital assets by state enemies such as North Korea, all the way down to common crypto conmen, would not be feasible without the money laundering expertise of Chinese crime syndicates.
Ari Redbord, global head of policy at TRM Labs, calls for a shift in perspective on how diverse criminal actors are leveraging the same illicit banking network. “We’ve been treating fentanyl like a drug crime, we’ve been treating North Korea like a cyber crime. People need to stop talking about these things as siloed threats and start talking about the Chinese money-laundering networks facilitating all of it”, Redbord asserts.
Take for instance, the February 2021 heist where North Korea managed to steal approximately $1.4 billion worth of Ethereum from crypto exchange Bybit in a matter of seconds. While this incident raised alarms about North Korea’s advanced hacking capabilities, it’s important to note that it was not North Korea that laundered those funds; it was the Chinese money launderers, says Nick Carlsen, a senior TRM investigator and former FBI analyst.
According to Carlsen, the threat posed by exchanges that facilitate North Korea-linked transactions is far less than that presented by black market Chinese bankers. These informal banks, operated primarily by Chinese organized crime syndicates known as triads, accept cryptocurrencies from various criminal enterprises and exchange it for fiat currencies.
If this global system were to be disrupted, Carlsen believes that it would significantly cripple organizations like the Sinaloa Cartel, which heavily relies on Chinese laundering of stablecoins.
While recent reports suggest that the Chinese government is taking steps to crackdown on crypto-related money laundering, Carlsen remains skeptical. He proposes that the most effective strategy in dealing with this threat could be a proactive approach, giving China’s financial underground a taste of its own medicine with aggressive on-chain maneuvers.
Such a strategy would require the U.S. to develop its own version of North Korea’s Lazarus Group—a division of tech-savvy government coders committed to committing cyber attacks against America’s crypto-wielding enemies.
However, for years, existing policies at agencies like the FBI, DEA, and Treasury Department have failed to address Chinese crypto laundering as a single threat in need of a coordinated response, according to TRM Labs. As a result, this issue has been allowed to fester, falling between the cracks of various agencies, leaving it largely unpursued.
The call to action is clear: to effectively neuter the financial capabilities of enemy states and criminal organizations, there is an urgent need for a comprehensive, unified response to the issue of Chinese crypto laundering.
