Recently, the anti-fraud propaganda film "All in One" has become a big hit. The plot in the film is that overseas fraud gangs use beautiful women to lure victims into participating in cryptocurrency pig-killing schemes and defraud the victims of their money. The concentrated exposure of Southeast Asian black and gray industries outside the film has resonated with countless audiences.

Art comes from life. Cryptocurrency, as a new value carrier and transmission tool, has been widely adopted by Southeast Asian criminal groups. Cryptocurrency is used in activities including online gambling, fraud, money laundering, etc. At the same time, its anonymity, decentralization and borderlessness also make related illegal activities more concealed and the circulation of stolen money faster, causing trouble for law enforcement agencies.

Fortunately, blockchain ledger data is open and transparent. Based on extensive address tags and open source network intelligence, Bitrace's crypto analysts will be able to track funds in illegal crypto activities through on-chain analysis. This article aims to illustrate through data:

Tether (hereinafter referred to as USDT) is widely used in illegal activities and gambling activities in Southeast Asia. Among the addresses that Bitrace has included in its monitoring, the scale in 2022 exceeded 115 billion USDT; USDT reflux transmits risks to more addresses and platforms, making them passively become transaction-related parties of illegal platforms. In 2022, more than 14.6 billion USDT flowed into trading platform accounts; USDT flowed out from the addresses of illegal platforms in Southeast Asia, and the top trading platforms passively assumed the majority of the share, but the operators of the gray and black production platforms and gamblers in Southeast Asia, who are mainly Chinese, have a preference for using a few exchanges. Figure｜"All or Nothing" Cryptocurrency Pig Killing Example

Telecom fraud is the most well-known illegal industry in Southeast Asia. As a business expansion of fraud gangs in the new technology field, cryptocurrency romantic scams have occurred frequently in recent years. This type of scam is often combined with investment fraud. Fraud gangs look for fraud targets on the Internet, develop romantic relationships with victims by creating attractive personalities, and choose opportunities to induce them to participate in cryptocurrency investment. After investing a large amount of money, victims often suffer "losses", are required to pay "taxes", or are unable to get their principal back.

Take a pig-killing scam that occurred 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 the victims purchased USDT on other trading platforms and transferred it to this platform, the fraudsters manipulated the background data to make the victims' "profits" grow rapidly. In the process, they also continued to urge the victims to add funds through rhetoric, and when the victims applied for withdrawals, they were required to pay back taxes and fees, otherwise they would not withdraw cash. In order to obtain profits, the victims in this case blindly borrowed and mortgaged real estate, and invested a total of RMB 12 million worth of USDT, but finally lost all their money.

In fact, the person who developed an online romantic relationship with the victim was fictitious, the investment platform was fake, and the so-called "taxes" were nonsense. In the subsequent fund analysis, we observed that more than one victim had fallen victim to this scam, and the recharged funds were simply collected and quickly flowed into a water room address in Laos.

There are countless cases like this where victims of telecommunications fraud have suffered, with stolen money flowing into money laundering centers in Southeast Asia in the form of cryptocurrencies.

The scale of illegal activities in Southeast Asia in 2022 exceeded 115 billion USDT

Based on a large amount of high-risk address data on the chain and automatic tracing analysis technology, Bitrace continuously monitors the inflow and outflow of funds at some major black and gray production platform addresses in Southeast Asia, and promptly identifies cryptocurrency funds related to illegal activities such as online gambling, fraud, money laundering, currency theft, extortion, and terrorism.

According to the DeTrust risk data platform under Bitrace, in 2022, a total of more than 115 billion USDT flowed into some Southeast Asian-related platform addresses, mainly including 37.16 billion online gambling funds and 69.78 billion money laundering funds, and 460 million USDT involved in fraud (some fraud cases that have been included and the stolen money has not been laundered).

It is not difficult to see from the monthly data that the scale of funds in 2022 was in a relatively stable state, which shows that such currency-related activities were not affected by the fluctuations in the cryptocurrency market and to a certain extent "crossed the bull and bear markets". Perhaps it implies that the participants or victims are not actually cryptocurrency investors in the true sense.

14.6 billion contaminated USDT will flow back from Southeast Asia in 2022

Earlier, Bitrace disclosed the pollution data of the leading centralized trading platforms in the Tron network through USDT as a medium. With the continuous increase of illegal entity address labels and the tracking and analysis of funds in related addresses, we have obtained more comprehensive pollution data using USDT as a medium by adding more network and trading platform addresses.

According to Bitrace's DeTrust risk data platform, more than 14.64 billion USDT of contaminated funds flowed directly or indirectly into centralized trading platforms from known Southeast Asian entity-related addresses in 2022. This includes 7.71 billion USDT of online gambling funds, 4.86 billion USDT of money laundering funds, 1.88 billion USDT of funds from other illegal activities, and a small amount of 190 million USDT of fraudulent funds.

Figure｜Scatter plot of risk capital collected by each trading platform (horizontal axis)

The contamination of cryptocurrency trading platforms by risky funds also follows the Matthew effect. Among them, the largest A-Exchange has received more USDT from Southeast Asia, including 38.87% of online gambling funds, 60.02% of money laundering funds, 43.94% of other illegal activities funds, and 70.59% of fraud funds.

In addition to the volume factor, some USDTs with specific contamination categories also show a preference for different trading platforms. For example, for a certain exchange, which has a business volume of 12% of that of a certain exchange and serves a large number of Chinese users, the business address of the certain exchange received 33.24% and 38.39% of other illegal activity funds and online gambling funds, respectively, which is almost the same as that of the certain exchange. This may be because most of the operators of Southeast Asian gray and black industry platforms, gamblers, casino agents, and operators of four-party payment platforms that provide cryptocurrency fund settlement for casinos are Chinese, resulting in a disproportionate inflow of related funds relative to the business volume.

Final Thoughts

Our industry is facing severe anti-money laundering challenges. TornadoCash, a well-known currency mixing platform, was sanctioned by the U.S. Treasury Department for being accused of assisting certain hackers in money laundering. Earlier, several centralized or decentralized crypto institutions were sued by government departments for indirectly providing services to hackers. For other crypto entities, perhaps there is only one future, which is compliance operation.