Author | Bitrace
Recently, the anti-fraud propaganda film “All In” has become popular. The plot of the film involves overseas fraud gangs using the image of beautiful women to deceive victims into participating in cryptocurrency Ponzi schemes and defrauding their money. The film’s exposure of the gray market in Southeast Asia has resonated with countless viewers.
Art originates from life. As a new type of value carrier and transmission tool, cryptocurrencies have been widely adopted by criminal groups in Southeast Asia. Cryptocurrencies are involved in activities such as online gambling, fraud, and money laundering. The anonymity, decentralization, and borderlessness of cryptocurrencies make these illegal activities more covert and the circulation of illicit funds more swift, posing challenges to law enforcement agencies.
Fortunately, blockchain ledger data is publicly transparent. With the help of extensive address labels and open-source intelligence, Bitrace’s cryptocurrency analysts will be able to trace the funds involved in illegal cryptocurrency activities through on-chain analysis. This article aims to illustrate the following points through data:
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Tether (referred to as USDT) is widely used in illegal activities and gambling in Southeast Asia. Among the addresses monitored by Bitrace, the scale of USDT in 2022 has exceeded 115 billion USDT;
The return of USDT spreads the risk to more addresses and platforms, making them passively become transaction counterparties of illegal platforms. In 2022, more than 14.6 billion USDT flowed into trading platform accounts;
USDT flows out of illegal platforms in Southeast Asia, and major trading platforms passively bear the majority share. However, Southeast Asian gray and black market platform operators and gamblers, mainly from China, show a preference for a small number of exchanges.
Image | “All In”
Example of Cryptocurrency Ponzi Scheme
Telecom fraud is the most well-known type of illegal industry in Southeast Asia. As fraud gangs expand their business in the field of new technologies, cryptocurrency Ponzi schemes have become increasingly common in recent years. These scams are often combined with investment fraud. Fraud gangs search for victims on the Internet, create attractive personas, develop romantic relationships with the victims, and then induce them to participate in cryptocurrency investments. After victims invest a large amount of money, they often experience “losses,” are asked to pay “taxes and fees,” or are unable to withdraw their principal.
Take the scam case of a pig-killing scheme in Xiaoshan, Hangzhou in 2021 as an example. The victims were induced to participate in cryptocurrency investment on a platform called “Asia-Pacific Exchange”. After purchasing USDT on other trading platforms and transferring it to this platform, the fraudsters manipulated the backend data to rapidly increase the victims’ “profits”. They also continuously urged the victims to add funds through rhetoric. When the victims applied for withdrawals, they were required to pay taxes and fees, otherwise the withdrawals would not be allowed. In order to obtain profits, the victims blindly borrowed money and mortgaged their properties, with a total investment of 12 million RMB worth of USDT, but in the end, they lost everything.
In fact, the person who developed a romantic relationship with the victims online was fictional, the investment platform was fake, and the so-called “taxes and fees” were baseless. In the post-analysis of funds, we observed that more than one victim fell into this scam. The funds deposited were quickly transferred to a water house address in Laos after simple consolidation. There are countless cases of telecommunications fraud where the stolen money flows into Southeast Asia for money laundering through cryptocurrencies.
In 2022, the scale of illegal activities involving cryptocurrencies in Southeast Asia exceeded 115 billion USDT
Based on a large amount of on-chain high-risk address data and automatic trace analysis technology, Bitrace continuously monitors the inflow and outflow of funds to and from the addresses of major black and gray production platforms in Southeast Asia, and promptly identifies cryptocurrency funds related to illegal activities such as online gambling, fraud, money laundering, theft, extortion, and terrorism. Through research on these types of addresses, our data further indicates that although they occupy the main focus in news and public opinion, the scale of cryptocurrency fraud activities on platforms monitored by Bitrace only accounts for a tiny fraction of the scale of illegal activities and gambling funds in Southeast Asia.
According to DeTrust, a risk data platform under Bitrace, in 2022, more than 115 billion USDT flowed into addresses of certain platforms in Southeast Asia, including 37.16 billion USDT in online gambling funds and 69.78 billion USDT in money laundering funds, while the amount of USDT involved in fraud was less than 460 million USDT.
Looking at the monthly data, it is not difficult to see that the scale of funds throughout 2022 remained relatively stable. This indicates that these cryptocurrency-related activities were not affected by fluctuations in the cryptocurrency market, to some extent achieving “riding the bull and bear” movements. Perhaps it implies that participants or victims are not true cryptocurrency investors in the true sense.
In 2022, 14.6 billion contaminated USDT flowed back from Southeast Asia
Earlier, Bitrace disclosed the contamination data of top centralized trading platforms in the Tron network involving gambling incidents using USDT as a medium. With the continuous increase in illegal entity address labels and the tracking analysis of related address funds, we have obtained more comprehensive contamination data using USDT as a medium by adding more network and trading platform addresses.
According to Bitrace’s DeTrust risk data platform, a total of more than 14.64 billion contaminated USDT were involved in centralized trading platforms in 2022, flowing directly or indirectly from known Southeast Asian entity-associated addresses. This includes 7.71 billion USDT of gambling funds, 4.86 billion USDT of money laundering funds, 1.88 billion USDT of other illegal activity funds, and a small amount of fraud-related funds totaling 190 million USDT.
Chart｜Scatter plot of risk funds collected by various trading platforms (horizontal axis)
Risk funds also follow the Matthew effect in polluting cryptocurrency trading platforms. Among them, a certain exchange with the largest trading volume received more contaminated USDT from Southeast Asia, including 38.87% of gambling funds, 60.02% of money laundering funds, 43.94% of other illegal activity funds, and 70.59% of fraud-related funds.
In addition to the volume factor, certain categories of contaminated USDT also show preferences for different trading platforms. Taking a certain exchange with a 12% trading volume and serving a large number of Chinese users as an example, in terms of other illegal activity funds and gambling funds, the business addresses of this exchange received 33.24% and 38.39% respectively, almost comparable to the aforementioned exchange. This may be because most operators of Southeast Asian gray/black production platforms, gamblers, casino agents, and fourth-party payment platform operators providing cryptocurrency fund settlement for casinos are Chinese, resulting in a disproportionate influx of related funds relative to the trading volume.
Our industry is facing severe anti-money laundering challenges. Well-known mixing platform TornadoCash was sanctioned by the US Treasury for assisting in money laundering, and several centralized or decentralized crypto institutions have been sued by government agencies for indirectly providing services to hackers. For other crypto entities, compliance operations may be the only future.