A team of researchers from Elliptic, a blockchain forensic company, IBM Watson AI platform, and MIT has made significant strides in using artificial intelligence (AI) to detect money laundering on the Bitcoin blockchain.
A recent report published by Elliptic revealed that researchers have successfully employed a deep learning model to identify criminal activities associated with crypto assets. Titled "Enhancing Blockchain Analytics Through AI," the report aims to provide clients with more accurate tools to assess risks related to crypto assets.
The AI deep learning model detects money laundering patterns and identifies crypto wallets used for illicit activities. Unlike traditional finance, where transaction data is usually "siloed," making it difficult to apply these techniques, the blockchain is transparent.
"Blockchains provide fertile ground for machine learning techniques, thanks to the availability of transaction data and information about the entities conducting transactions, collected by us and others."
Additionally, Elliptic reported that it's possible to train a machine learning model to recognize "multi-hop" transaction chains, often used in money laundering cases on Bitcoin.
"This approach allows us to focus on the 'multi-hop' laundering process more generally, rather than the on-chain behavior of individual suspected operators."
The researchers then used Bitcoin transaction patterns leading to individuals involved in illicit activities to exchanges crypto. They used these exemplar patterns to train an AI model that identifies money movements similar to those suspected of money laundering.
The company stated that it applied advanced AI tools to test a dataset containing over 200 million transactions.
Money Laundering in 2023
According to a Chainalysis report, the value of laundered crypto reached $22.2 billion in 2023, a significant decrease from $31.5 billion in 2022. Furthermore, "the decline in laundering activity was more pronounced, at 29.5%, compared to the 14.9% decrease in total transaction volume."
Crypto laundering tactics are evolving, with criminals adopting increasingly sophisticated techniques and using bridges and mixers. Despite the reduction, money laundering remains a significant issue. In recent years, governments have increasingly emphasized the need for greater anti-money laundering scrutiny.
For example, this week, former Binance CEO Changpeng Zhao was sentenced to four months in prison after pleading guilty to charges of facilitating money laundering on his crypto exchange.
In another case, last month, US authorities arrested the founders of the Bitcoin mixer Samourai on charges of money laundering. The founders allegedly conducted over $2 billion in illegal transactions and laundered over $100 million from illegal activities.