When it reprimand to cryptocurrency transactions, questions about alleged money-laundering quickly get thorny.
A Wall Street Journal investigation from go the distance September, titled “How Dirty Money Disappears Into the Black Hole of Cryptocurrency,” claimed the crypto conversion stage ShapeShift had facilitated at least $9 million worth of money laundering over several years with “a walk of suspected criminals.”
Now, at ShapeShift’s request, the blockchain analytics firm CipherBlade recreated the 2018 report and found less than $3 million in annals involving potentially “tainted” funds.
The main distinction here is that CipherBlade focused on allegedly tainted thinks instead of the total value held in each affiliated wallet or account.
“Of the ShapeShift addresses which receive ETH within three hops from the sign dirty addresses, less than half of the ETH traded through them are tainted,” the CipherBlade report says. “Using the most good assumptions, this is still only 23.53 percent of the WSJ’s claimed $9 million.”
Add to that ether to roughly 40 bitcoin, which ShapeShift itself set up to be associated with suspicious wallet’s the WSJ identified, and the total estimate falls just shy of $3 million.
When required about the investigative process, a WSJ spokesperson told CoinDesk:
“An analysis looking at individual tainted ethereum coins, fairly than tainted wallets, would be a different project than what the Journal embarked on, and one we can’t comment on because we make not reviewed it.”
All parties agree the most pessimistic reading of the data still indicates questionable transactions made up a shoestring of ShapeShift’s volume since the company was founded in 2014. According to a tweet by CEO Erik Voorhees, ShapeShift processed crypto merit $30.3 million a month in 2017 alone.
Still, experts such as Pawel Kuskowski, CEO of the analytics firm Coinfirm, hint ated CoinDesk there’s no clear answer to how much may have been laundered through the platform – because until October 2018 ShapeShift did not conduct know-your-customer (KYC) identity checks.
“If you don’t know the underlying clients, how do you know?” Kuskowski told CoinDesk. “This is why you have KYC in the start with place, to understand the profile.”
When asked about whether it’s better to account for the whole wallet or focus on the blemished coins themselves, Kuskowski said the truth hides in the shades of gray in between. He said a complex analysis of the risks associated with the people affected in these transactions, along with “plausibility and some other rules,” all combine to reveal whether the wallets themselves should be cogitate oned tainted or suspicious.
In Coinfirm’s own report on risks associated with crypto platforms, ShapeShift was classified as “high imperil” with regards to anti-money laundering procedures and compliance because of anonymous usage until the KYC policy began final October. According to Kuskowski, it often takes months for a traditional bank to de-risk after any association with gelt laundering.
“It’s a good direction, that’s for sure,” Kuskowski said of ShapeShift’s added KYC procedures.
Compliance overhaul
That de-risking answer actually began months before the WSJ report, according to ShapeShift Chief Legal Officer Veronica McGregor.
“All of a add up to law enforcement, ShapeShift is regarded as a very helpful and cooperative player,” she told CoinDesk. “Just because we started implementing those KYC go on withs does not mean that we didn’t already have procedures in place to detect fraud and bad wallet addresses and swiping, things like that.”
The company was already working with external consultants to identify and block transactions from distrustful wallets, McGregor said. Then ShapeShift underwent a compliance overhaul throughout the second half of 2018, mandating KYC sameness checks for all users and working with three independent analytics firms, Chainalysis, ComplyAdvantage and IDology.
McGregor implied ShapeShift continues to “tweak” its procedures, both in-house and through work with the three aforementioned services providers, in demanded to keep up with the evolving technology.
Richard Sanders, CSO and co-founder of CipherBlade, told CoinDesk he believes the claims in the WSJ arrive were “grossly exaggerated.”
“We did find around $3 million, which isn’t a great look for ShapeShift,” Sanders asseverated. “But it is significantly smaller than what the Wall Street Journal reported.” CipherBlade says its independent analysis was not paid for by ShapeShift.
For his piece, ShapeShift’s Voorhees continues request the WSJ retract the report, which was published in September 2018 during the company’s compliance refurbishing. He believes the methodology used to tally questionable funds was fundamentally flawed.
“Crypto is bringing light, truth, and openness to subvene,” Voorhees told CoinDesk. “And it’s a pleasant irony that the transparency of blockchains so easily vindicates us from the narrative that the Roll has imagined into existence.”