A new investigation by the International Consortium of Investigative Journalists (ICIJ) reveals how billions of dollars linked to money laundering gangs, drug dealers, North Korean hackers and terrorist organizations like Hamas and the Islamic Revolutionary Guard Corps in Iran are transferred through the world’s largest cryptocurrency exchanges. Shomrim participated in the investigation as the Israeli representative.

The international investigation, which was published under the name The Coin Laundry and involved the work of more than 110 journalists from 35 countries, points to significant failings in the areas of protection and supervision by those bodies responsible for regulating the cryptocurrency industry and tackling the money laundering that takes place in it.  Among its findings, the investigation discovered that the main cryptocurrency exchanges continued to process large volumes of suspicious transactions, even after reaching a plea agreement with authorities in the United States and continued to be under the supervision of an American compliance officer. Using a global network of journalists, the ICIJ collected the addresses of hundreds of cryptocurrency wallets which had been cited in indictments across the world or that had been confiscated by various authorities. These wallets – and the tens of thousands of transactions linked to them – were analyzed by journalists in dozens of countries, who found that, in many cases, the owners created accounts or sent money through the largest and best-known exchanges, such as Binance and OKX.

One of the cases revealed in the investigation, for example, showed how one cryptocurrency wallet hosted on the Binance exchange – a wallet that, according to the U.S. Treasury Department, belongs to the Sinaloa drug cartel in Mexico – received transfers totaling more than $700,000, most of them from the U.S.-based Coinbase exchange. In response, Coinbase told the ICIJ that it was aware of the issue and that the money in question was eventually confiscated, in collaboration with American authorities. In other cases, money belonging to an infamous gang of Chinese Fentanyl dealers was paid into various wallets on the OKX exchange and a Russian money launderer who specializes in transferring funds for North Korea’s arms program owned a wallet on the HTX exchange – which did not respond to the ICIJ’s request for comment.

Watch a short video about the international investigation:

Terrorist organizations also make widespread use of cryptocurrency; in May this year, Shomrim published its own investigation into Hamas fundraising activities. That investigation found that potential donors to the Gaza-based terror group were instructed to send money in cryptocurrency and were given detailed instructions on exactly how to make the transfer anonymously. In November 2023, shortly after the outbreak of the October 7 War, Shomrim published another investigation which revealed that Israel, like many other countries, was aware that terrorist groups were using cryptocurrency to fund their activities. Israel did far too little, far too late – especially given that, by the time it acted, the terrorists had managed to convert their crypto fortunes into cash.

An analysis conducted by Shomrim as part of the ICIJ investigation revealed that even crypto wallets that Israel had flagged as belonging to Hamas, Iran or other terrorist entities continued to operate on the main exchanges, including Binance. Thus, from a sample of the 187 wallet addresses that Israel published in September, which it had identified as being the property of the Revolutionary Guards, several were found to contain funds deposited on Binance and other well-known exchanges. Money from wallets that Israel declared were linked to Hamas also used the Binance exchange – including, for example, wallets for which Defense Minister Israel Katz issued an administrative seizure order late last month. Shomrim contacted the National Bureau for Counter Terror Financing of Israel, but has yet to receive a response.

An analysis conducted by Shomrim as part of the ICIJ investigation revealed that even crypto wallets that Israel had flagged as belonging to Hamas, Iran or other terrorist entities continued to operate on the main exchanges

When it comes to criminal organizations operating in Israel, it seems that the police are trying to crack down on the phenomenon. Shomrim can reveal here exclusively that the Israel Police recently signed a 9-million-shekel contract with Chainalysis, the best-known international cryptocurrency investigation and compliance company, which offers enforcement bodies analysis of suspicious activities, access to its massive database and various training services.

The Israel Police refused to respond to questions on the matter, telling Shomrim that it “does not talk about [the] methods and means” it uses.

Millions of users and Trump’s embrace

In recent years, cryptocurrencies – and especially Bitcoin – have turned from being a niche technological tool to a worldwide financial phenomenon with significant impact on the global economy and on daily life. The technology behind cryptocurrency – the blockchain – created a new model allowing decentralized money transfers, without the involvement of any central body, like a bank or a government. The centrality of cryptocurrency is evident not only in the steep rise in the price of the digital asset and in massive institutional investment in cryptocurrency, but also in the creation of new financial markets – and the way that businesses and companies are starting to incorporate crypto in the payment options and supply chain. These changes, along with the warm embrace that cryptocurrencies are receiving from the current U.S. administration, under President Donald Trump, have turned them into a force that is reshaping the financial world.

On October 23, Trump pardoned Binance founder Changpeng Zhao, who pleaded guilty to allowing money-laundering through his cryptocurrency company and who served a four-month sentence in a low-security prison. Trump “has officially ended the Biden administration’s war on the cryptocurrency industry,” White House Press Secretary Karoline Leavitt said at the time.

The beating heart of the cryptocurrency industry are the crypto exchanges, which are the main entry point for millions of users who are migrating from the traditional financial world to the crypto economy. It is the exchanges that allow users to hold liquid digital assets by offering platforms where they can trade digital currencies like Bitcoin and Ether against fiat currencies (government-issued money, like the U.S. dollar or the euro) or against other cryptocurrencies. These exchanges set the market price of the assets and are a vital element in the development and adoption of the entire industry.

The business model of these crypto exchanges is based primarily on charging a commission for the various activities that their platforms host. Thus, their main revenue stream comes from transaction commissions – a relatively small charge that is taken from both the buyer and the seller in any transaction. The massive volume of transactions and the volatility of the market ensure healthy income for the exchanges. In addition, they make money from fees for withdrawals and deposits on both fiat currencies and cryptocurrencies, as well as offering complementary financial services for which they can charge commission or service fees.

According to the ICIJ investigation, it is this very structure that sometimes creates a problematic economic incentive, since the greater the volume of transactions – including suspicious activities – the more the exchange earns. The investigation raises the question of whether the exchanges are doing enough to counter illegal financial activity. Asked by the ICIJ about this issue, Prof. John Griffin – the chair of the Finance Department at the University of Texas at Austin and an expert in cryptocurrency – said that exchanges do indeed “have an incentive to allow this activity to continue,” explaining that “if they kick criminal actors off the platform, then that’s a big revenue source that they lose.”

“Crypto offers criminals a financial system that’s very efficient compared to the old days when a cartel would have to stuff cash into the back of a Cadillac,” Griffin added.

The investigation also described how representatives of authorities in the United States often lack the training and tools needed to track stolen cryptocurrency – and almost never manage to return the lost money. According to FBI estimates, Americans lost $9.3 billion to crypto crime in 2024 alone – an increase of 67 percent compared to the previous year. At the same time, former compliance officers who worked on various exchanges say that they were inundated with work and lacked resources, making it impossible for them to keep pace with sophisticated criminal operations.

According to the investigation, compliance is expensive and does not generate any income, which makes companies disinclined to invest the money needed to obey the regulator’s instructions. This allows criminals to abuse the system, mainly by transferring illicit assets through multiple anonymous and unverified crypto wallets, before depositing them into established exchanges – which for the most part view the money as “clean.”

As mentioned, the investigation discovered that the main cryptocurrency exchanges continued to process large volumes of suspicious transactions, even after reaching a plea agreement with authorities in the United States and even as they were supposed to be under the supervision of an American compliance officer. In May this year, for example, U.S. authorities revealed that Huione – a Cambodian finance company that is used by Chinese criminal enterprises to launder proceeds from human trafficking and global scams – is a key funnel for money laundering. However, an analysis by the ICIJ revealed that at least $408 million in cryptocurrency made its way to Binance wallets from the Huione group. These funds were also transferred through Binance after it admitted to U.S. authorities in November 2023 that it had failed to maintain an effective anti-money laundering program and paid a fine of more than $4 billion. According to the ICIJ analysis, around $161 million that originated from Huione has moved through the OKX exchange in the past six months alone.

In response to the ICIJ investigation Binance said that it is working in close cooperation with global law enforcement bodies and that it is the leading player in the industry when it comes to identifying and responding to suspicious deposits. OKX told the ICIJ that it invests heavily in compliance and that it “took proactive steps to restrict relevant accounts” even before the Huione group had been labeled a money-laundering concern. It added that it has been working with the U.S. government on the matter.