[2019-04-05] How Crypto Miners help launder money

[FreeEarnsActivist]

When analyzing certain blockchains you can find many transactions in which users give a high transaction fee that exceeds the actual transfer amount. This case happens in cryptocurrency networks with proof of work and in many cases is an initial signal that an entity is attempted to hide the source of funds or launder funds through miners/mining pools. This is article made by Coinfirm AMLT.


https://www.cointelligence.com/content/how-crypto-miners-help-launder-money/

[Betwrong]

It's possible that miner slipped in their own special transaction (from a different wallet address), potentially for money laundering purposes.

I think they forgot to mention that the miner in this case must be one of the biggest mining pools, or it is hardly possible otherwise. Trying to do that solo may take years (if not eternity) for your transaction to be confirmed.

Overall the whole article is looking like an attempt of promoting the AMLT token which is actually doing very poorly according to CMC:

[buwaytress]

I've actually read Cointelligence reports in the past and they weren't too bad but this headline doesn't start it off in a good way at all.

What it is suggesting in the lead is that those who pay higher fees are likely people who want to hide their txs? But isn't this a self-contradictory statement? I mean, what better way to call attention to yourself than to pay a fee abnormally higher than the average?

It's deliberate behaviour, sure, but why does this automaticaly qualify the attempts as laundering? The article in no way seems to validate this.

P.S. So this is the start or AML organizations in crypto?

[NeuroticFish]

It's possible that miner slipped in their own special transaction (from a different wallet address), potentially for money laundering purposes.

There are pools that "accelerate" transactions for free of for a certain fee.
There are pools where some "friends" can sometimes influence the owners (for free or for certain fee) "accelerate" certain transactions.

All these are cases discussed in the forum, especially when the transactions fees were high.
All these are cases "the miner" "slipped in" certain transactions, not necessarily their own, but clearly out of the rule.

So I think that such transactions were not deliberately accelerated for money laundering purpose, instead just "helping out" others.


A big part of the article is about the transactions with way too big fee.
But it forgets telling that the high fee transactions can also get mined by another pool. What then? It would mean that all the pool owners are part of the money laundering operations, which I find highly unlikely.
My conclusion is that the write doesn't understand mining and simply made a click-bait article...

[Betwrong]

~
But it forgets telling that the high fee transactions can also get mined by another pool. What then? ~

CMIIW, but I think it can be done the following way. First, a raw transaction is created, and it is not broadcasted to the network. Then a pool(and it must be one of the biggest pools, as I said earlier), let's call it Pool01, includes it in a block, and if the block is successfully mined the pool gets the fee. If another pool, say, Pool02, mined a block earlier, then Pool01 includes the transaction in question in another block and tries to mine it, and so on until Pool01 successfully mines a block with this transaction included. If the Pool01 is not big enough this can go on forever, that's why it must be one of the biggest pools around.

But I agree with you in general, the notion that it has something to do with money laundering is unsubstantiated.

[d5000]

What it is suggesting in the lead is that those who pay higher fees are likely people who want to hide their txs? But isn't this a self-contradictory statement? I mean, what better way to call attention to yourself than to pay a fee abnormally higher than the average?

As far as I interpreted the article, the mechanism would work the following way:

- Alice has BTC from an illegal source.
- She contacts mining pool owner Bob to launder the money. They agree that Bob will send Alice the money from a "clean" address and Bob retains a fee/commission.
- Alice sends the transaction privately to Bob (without broadcasting it). Bob includes it in his blocks, and if he mines a block, he gets the fee. Bob then sends the money to Alice.

So Alice has achieved what she wanted: Her money isn't linked anymore to the illegal activity. Her transaction with the big fee won't be a problem because she can delete all the keys linked to suspicious addresses and transactions once she has the money again.

The mining pool also can "wash his hands" and say that he cannot be blamed for high fees sent by users to him. How to prove that the transaction was never publicly broadcasted? Not totally impossible, but extremely difficult; One would have to investigate backups of the mempools of all big mining pools, for example ...

However, if this was occuring several time with the same miner, then the pool could become suspicious and get investigated. But if it's not done regularly, then there is nothing that can be proven.

[elda34b]

However, if this was occuring several time with the same miner, then the pool could become suspicious and get investigated. But if it's not done regularly, then there is nothing that can be proven.

AFAIK there is only one occurrence as far as I'm involved with crypto (the 2100 ETH fee), and people already started investigating that and one theory even suggest that it was used for money laundering, but yeah there is no official investigation on them as it's hard to prove anything just by several transactions.

If this scenario were used then it means the one who launders the money has some big connections with mining pool, which is definitely interesting if that was true. In other words, you can launder your money if you're connected with the pools (or miners). Might as well build a mining righ by yourself to launder your own money then?

[vit05]

It does not make much sense to use something like that for money laundering. Money laundering needs to leave the after-washed resource not only untraceable, but that is the fruit of something simple to be explained.

This obtained resource, even if it is technically possible to explain to a judge, would leave several doubts. It's much simpler fake orders in an exchange or an investment in a fake project.

[Kakmakr]

What it is suggesting in the lead is that those who pay higher fees are likely people who want to hide their txs? But isn't this a self-contradictory statement? I mean, what better way to call attention to yourself than to pay a fee abnormally higher than the average?

As far as I interpreted the article, the mechanism would work the following way:

- Alice has BTC from an illegal source.
- She contacts mining pool owner Bob to launder the money. They agree that Bob will send Alice the money from a "clean" address and Bob retains a fee/commission.
- Alice sends the transaction privately to Bob (without broadcasting it). Bob includes it in his blocks, and if he mines a block, he gets the fee. Bob then sends the money to Alice.

So Alice has achieved what she wanted: Her money isn't linked anymore to the illegal activity. Her transaction with the big fee won't be a problem because she can delete all the keys linked to suspicious addresses and transactions once she has the money again.

The mining pool also can "wash his hands" and say that he cannot be blamed for high fees sent by users to him. How to prove that the transaction was never publicly broadcasted? Not totally impossible, but extremely difficult; One would have to investigate backups of the mempools of all big mining pools, for example ...

However, if this was occuring several time with the same miner, then the pool could become suspicious and get investigated. But if it's not done regularly, then there is nothing that can be proven.

Thanks for explaining this, because I did not get it, the first time I have read it.    Now, let's dissect this method and see if this is the most affective way to do this.    Even though these tx's are not publicly broadcasted, it is still reflected on the Blockchain, right? So why would you deliberately leave an indestructible evidence of your crime on the Blockchain?

There are more affective methods to do this, with off-chain databases that can be destroyed, for example : Mixer services / online Gambling sites / Dark markets on Tor.. etc. 

[d5000]

If this scenario were used then it means the one who launders the money has some big connections with mining pool, which is definitely interesting if that was true. In other words, you can launder your money if you're connected with the pools (or miners). Might as well build a mining righ by yourself to launder your own money then?

In theory, it isn't even necessary to exist a blatantly illegal, mafia-like connection: The "launderer" could rent the mining facility (it hasn't to be an entire pool) for a couple of hours and try to mine blocks including his laundry transactions. I don't know if there are currently entire mining farms for rent, but it is a possibility.

However, I doubt this is very cost-effective ... as @Kakrmakr wrote there may be much easier solutions. I don't think this is a mechanism that makes sense on a big scale, but it could be an option for very desperate actors (let's say you hacked an exchange and the police already is raiding you house, and your only way to launder is through a fast and simple mechanism),

@vit05: You are totally right, the "renting the mining farm" mechanism I described above however would be a possibility to "legitimate" the income. The criminal alleges he rented the farm "for profit", of course ... (and the mining farm owner made his profit too).

[BitHodler]

There are more affective methods to do this, with off-chain databases that can be destroyed, for example : Mixer services / online Gambling sites / Dark markets on Tor.. etc.  

Everything is potentially traceable to the person with enough effort put into it, also through the off-chain databases you are referring to. People make mistakes all the time and pay the price for it.

Mixing services are centralized entities that might not actually delete their logs at all, even if they state to do so and they are reputable and people haven't (yet) had a problem with any of them.

Bitcoin is one of the worst tools to launder money with, and it gets worse the more advanced authorities become. Cash is and will remain the absolute leader as currency for those who have other intentions.

Nothing is as anonymous and decentralized as cash.