Identifying crypto money laundering: the patterns on the blockchain
Date: | Week: 29 | Reading time: 7 minutes | Updated: Author: Tyler Dijst
In short
Crypto money laundering can often be spotted through patterns on the blockchain: amounts that are split up, passed quickly through many wallets or sent through a mixer. Such a pattern can point to laundering, but it can also have an ordinary explanation. Only when someone looks at the whole picture do you know what is going on.
Paucitas is an independent expert firm in the Netherlands that investigates crypto fraud, in hundreds of cases a year. Paucitas traces transactions itself and records what a pattern does and does not show.
Get in touch with Paucitas or call +31 20 244 5774. In a free intake you will hear what can be established in your situation.
In a nutshell
A suspicious pattern is a question, not a verdict. Paucitas maps the route and says honestly what it does and does not show, so you or your bank can move forward.
You see transactions you do not trust. Or you received crypto and your bank is asking why it took such an odd route. That is unsettling, especially if you did nothing wrong yourself. We understand that.
This blog is about spotting and interpreting laundering patterns. If you want to know how a trail through many wallets or a mixer is followed, read tracing crypto across multiple wallets and mixers.
Which 6 patterns point to crypto money laundering?
These patterns come up again and again when someone wants to hide where crypto came from. One pattern on its own says little. Only when several appear together, in a logical order, does it become meaningful.
- Splitting: a large amount is divided into many small amounts.
- Rapid transfers: money moves through a series of new wallets in a short time.
- Peel chain: at each step a small part is split off and the rest moves on. See peel chain.
- Merging: money from different sources comes together in one wallet.
- Quick swaps: crypto is converted straight away into other coins or onto another network.
- Mixers: services that mix many users' crypto to break the link between sender and recipient. See mixer.
Do you see one or more of these patterns in your own transactions? Let Paucitas take a look with you. You can always call, 24/7, on +31 20 244 5774.
Does a suspicious pattern prove money laundering?
No. The same steps can have an ordinary explanation: someone manages several wallets, moves money between their own accounts or uses a service to protect their privacy. A pattern needs context. Who is the owner, when did it happen, where did the money come from and where did it go?
That is why Paucitas always states what the route does and does not show. A judgement on money laundering is for the competent authorities, not the investigator. Sometimes a pattern that looked suspicious turns out to be entirely ordinary.
An example from practice
A business owner sold a car and was paid in bitcoin. A few weeks later his bank asked why the bitcoin he received had passed through many addresses and a mixer. He was alarmed, because he had nothing to do with that.
Paucitas traced the route. The bitcoin had indeed taken an unclear path before reaching him. His own part, however, was clear: the sale, the receipt and the transfer on to his exchange. With the report he could explain to the bank exactly what he did and did not know.
Paucitas takes privacy very seriously and never shares clients' personal details. This is a composite example: names, amounts and details have been changed. The situation is one we see in practice.
What role do mixers play in money laundering?
A mixer pools crypto from many users and redistributes it. Using a mixer can indicate that someone wants to hide where funds came from, although not every use is a crime. For an investigation, a mixer breaks the direct route. What happens before and after the mixer often remains visible. An example is in the case of crypto traced through a mixer.
What UK rules say about money laundering and reporting
In the UK, banks, cryptoasset firms and other regulated businesses must know their customers under the Money Laundering Regulations 2017, ask about the source of funds where needed and report suspicions to the National Crime Agency through Suspicious Activity Reports. As a private individual you do not have that reporting duty.
How does Paucitas interpret a suspicious pattern?
Paucitas does all tracing itself, without tracing tools. We follow the transactions step by step and check each one individually before it goes into a report. We look at timing, amounts, order and the parties the trail passes. Paucitas also looks beyond the blockchain: we go through conversations, documents, emails and other communication as well, so that a complete picture emerges, with a timeline and an overview of where all the money went.
You receive a report that anyone can follow and understand step by step. It describes the route, what it shows and where uncertainty remains. It also shows what the next steps are, for example a conversation with your bank or your solicitor. If you have been harmed yourself, the Paucitas report is a strong attachment to a report to Report Fraud or, in Scotland, Police Scotland, because it sets everything out fully and clearly. More on how we work in blockchain investigation explained.
What should you do if you suspect crypto money laundering?
- Keep the details of the transactions involved: addresses, transaction IDs, dates and amounts.
- Do not draw conclusions yet; have the route mapped first.
- Is your bank asking about crypto you received? Then read why your bank asks about the origin of your crypto.
Have you been harmed yourself? Let Paucitas take a look with you, so you know what happened to your money and what the next steps are.
Who investigates suspicious crypto transactions?
Paucitas. We work for private individuals, business owners, solicitors and compliance teams who want to know what a route really shows.
- Costs: every investigation is tailored. You receive a tailored quote in advance that we go through together, with no surprises.
- Turnaround: from the same day to around two weeks.
- Contact: you can always call, we answer the form within 1 to 3 hours, and email within 24 hours, usually the same day.
Unsure about a route or a question from your bank? Get in touch for a no-obligation introduction, or call +31 20 244 5774. More on our fraud work in crypto fraud investigation.
Sources: legislation.gov.uk, Money Laundering Regulations 2017; National Crime Agency, Suspicious Activity Reports; Report Fraud; Police Scotland, scams and frauds.
Do you have questions about this blog?
Feel free to get in touch with Paucitas. Paucitas can be reached by phone 24/7, including evenings and weekends. Through the contact form we usually reply within 1 to 3 hours, and we answer e-mail within 24 hours.
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Frequently asked questions about crypto money laundering
What are the most common crypto money laundering patterns?
Paucitas mainly sees splitting, rapid transfers across many wallets, peel chains, merging sources, quick swaps and mixers. Each pattern alone says little; the combination in context is what makes it meaningful.
Can I create a suspicious pattern by accident?
Paucitas sees that this can happen. Anyone who manages several wallets or often moves funds between their own accounts can look like a suspicious pattern on paper. That is why interpretation is needed before anyone draws a conclusion.
Can Paucitas trace transactions through a mixer?
Paucitas cannot always do so in full, because a mixer breaks the direct route. What happens before and after the mixer often remains visible. Paucitas maps that and says honestly where the trail stops.
My bank is asking about crypto I received. What now?
Paucitas sees this often: it is entirely normal and does not mean anything is wrong. Paucitas maps the route of the crypto so you can answer the bank with facts.
Do old transactions remain visible for investigation?
Paucitas: yes. Transactions stay on the blockchain and can still be investigated years later. That makes it possible to reconstruct old routes.
From Amsterdam, for the whole of the UK
Everything can be done fully online. Prefer to meet in person? You are very welcome at our office in Amsterdam, by appointment.
Paucitas is an independent expert firm based in the Netherlands that, for clients across the UK, investigates investment fraud and crypto fraud, establishes the origin and legitimacy of crypto assets and prepares expert reports for legal proceedings and compliance.
Your own situation
If you are reading this, you probably have a question about your own situation. That is exactly what Paucitas does.
The first step is contact by phone. You can book that call by phone or through the contact form, so you do not have to wait. In the call we look together at what can factually be established in your case and what Paucitas can examine for you.