Criminal Groups Launder Billions in Crypto via Chinese Black Market

According to new research, a variety of criminal groups, including North Korean hackers, Mexican drug cartels, Russian mobsters, and scammers impersonating bosses on Telegram, rely on the Chinese black market to launder their billions in crypto. Despite the perception of crypto as an uncensorable, borderless financial underworld, most major criminal groups utilizing digital assets depend on sophisticated underground Chinese banking networks, according to blockchain intelligence firm TRM Labs.

TRM’s leadership, with decades of federal government experience, argues that U.S. policy has not adequately addressed the reality that these criminal actors depend on the same illicit banking network to function. Ari Redbord, TRM’s global head of policy, believes U.S. law enforcement has failed to recognize how these diverse criminal actors are interconnected through Chinese money-laundering networks.

For instance, in February, North Korea executed the largest hack in history, stealing $1.4 billion worth of Ethereum from crypto exchange Bybit. While this heist highlighted North Korea’s hacking capabilities and the potential complicity of third-party crypto exchanges, it was actually Chinese money launderers who converted the stolen Ethereum into Bitcoin through services like Thorchain.

Nick Carlsen, a senior TRM investigator and former FBI analyst, argues that the threat posed by exchanges facilitating North Korea-linked transactions is minor compared to that of black market Chinese bankers. These informal banks, operated mainly by Chinese organized crime syndicates called triads, convert stolen crypto into fiat for Chinese nationals seeking to bypass the nation’s restrictive banking system.

Carlsen emphasizes that if this global system were disrupted, it could cripple organizations like the Sinaloa Cartel, which relies on Chinese laundering of stablecoins to operate. TRM suggests that targeting offshore safe havens in southeast Asian nations like Cambodia with U.S. sanctions could eliminate the practice.

Despite reports of the Chinese government cracking down on crypto-related money laundering, Carlsen remains skeptical, noting that the business thrives despite China’s surveillance powers. He believes the most effective defense is an aggressive on-chain strategy, mirroring North Korea’s tactics against America’s crypto-wielding enemies.

TRM contends that existing policies at agencies like the FBI, DEA, and Treasury Department have failed to address Chinese crypto laundering as a single threat, allowing the issue to persist. Representatives from these agencies did not respond to requests for comment.

Carlsen highlights that the issue falls between the jurisdictions of these agencies, leading to a lack of coordinated response. He suggests that a more proactive approach, such as developing a U.S. equivalent to North Korea’s Lazarus Group, could be effective in combating this threat.