The benefits that Blockchain brings to Governance and Fraud Detection

Blockchain Governance

Blockchain facilitates effective seizure of money laundering proceeds 

Last week we bore witness to the true potential for asset recovery and criminal seizures using blockchain technology.  The immutable characteristics of on-chain transactions means that forever more there will be a record of that transaction that can be analyzed and traced, there is no way to undo or entirely remove evidence of those trades. In 2016 Bitfinex exchange security was compromised, and the hacker initiated around 2,000 transactions, which they then sent to a single wallet.  At the time of the hack the value of the transactions was approximately $71 million, which at todays’ BTC market rate is valued at $4.5 billion. 

For many years the assets sat in the wallet untouched, but once the bitcion started moving out of the wallet investigators were able to start tracing it.  The authorities were able to match the wallet to the individuals who controlled access to the assets,  by decrypting a file owned by the perpetrator that contained addresses and private keys associated with the stolen funds. Due to the openness and transparency of blockchain, law enforcement was able to quickly investigate and seize the stolen coins.  Whilst some of the value was usurped the Department of Justice still managed to file their highest value asset seizure transferring $3.6 billion worth of value.

Blockchain Governance

Advances in analytics and tracing technologies 

The recent seizure is likely only the beginning of the DOJ’s efforts to crack down on crypto scams. The feds have been highly active, launching a National Cryptocurrency Enforcement Team last year to expand investigations of money laundering and other financial crimes. Last June, it  recovered millions of dollars from the Colonial Pipeline ransomware attack. Meanwhile, other regulatory bodies, including the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are positioning themselves to get a piece of the regulatory action.

In today’s climate, we are seeing constant demand for enhancements in blockchain tracking and security for e.g TRM Labs, have developed a tool to combat the effectiveness of “chain-hopping”, a set of actions in which launderers move funds rapidly across different blockchains (like transferring coins from the Bitcoin to Ethereum blockchain and then to Solana). Elliptic have also developed techniques to track money across “peeling chains”, a layering process where cryptocurrency is routed through a myriad of addresses.

Some of the additional investigative findings, and things to look out for in our own analysis include the following:

  1. Accounts tied to similar email addresses hosted by the same provider; 
  2. Where accounts are accessed by the same IP addresses; 
  3. Accounts created around the same time period as a hacking event;
  4. Engaged in similar trading patterns entailing chain hopping  to anonymity-enhanced virtual currency; and/or
  5. Accounts are abandoned following a request for additional know-your-customer (KYC)  information.  

Additionally, where nefarious actors and transactions are identified, there will also inevitably be exchanges between multiple accounts, individuals, entities of interest to financial crime investigators.  The examination of illicit activity in detail and patterns, will also help to identify any indirect parties or modalities that facilitated the movement of laundered assets, thus attacking the criminal networks and exposing exchanges, financial institutions or other participants that are useful in facilitating criminal activities. 

The immutability of blockchain technology has given law enforcers an irrefutable ability to follow illicit activity on-chain, and the exit of assets into the more traditional financial systems. This affords the opportunity for tangible and timely pursuit, seizure and repatriation of laundered and proliferated funds.


Blockchain is not just a channel or means of laundering funds, but is in of itself a powerful tool for investigating financial crime. As it evolves further, it might even have the potential to deter bad actors from participating and using it a means of transfer, as unlike fiat transactions, is’t becoming increasingly difficult to obfuscate and as coming under heightened regulation and supervision.

Contact Provenance

© Provenance Group. All Rights Reserved

Scroll to Top