WSJ Claim of $9 Mln Laundered Via Shapeshift Based on Flawed Investigation, Analysts Say

Published at: March 21, 2019

Blockchain intelligence firm CipherBlade has accused the Wall Street Journal (WSJ) of using flawed investigative methods and thus overestimating the extent of alleged money laundering via crypto exchange ShapeShift. CipherBlade’s analysis of the WSJ report was published in a blog post on March 20.

As reported, the WSJ published a lengthy exposé in fall 2018 that alleged ShapeShift had facilitated the laundering of at least $9 million via cryptocurrencies — purportedly more than any exchange with offices in the United States in the course of the Journal’s investigations.

The WSJ had claimed that the exchange had processed millions of dollars in criminal proceeds, a high proportion of which were purportedly being converted into privacy coins such as Monero (XMR).

At the request of ShapeShift, CipherBlade undertook an extensive analysis of the WSJ’s investigation, concluding that the “$9 million ‘laundering’ claim was overstated by a factor of 4x” given that:

“By tracing alleged ‘laundering’ through ‘no more than two intermediaries before reaching an exchange’, the WSJ’s stated methodology was fundamentally flawed [...] The tracing of any funds — illicit or not — over the course of multiple transactions is extremely difficult, and presenting the total contents of subsequent wallets as illicit is forensically unsound.”

CipherBlade thus states that the WSJ’s claims were necessarily distorted, and that a sound forensic method would instead entail a granular tracing of identifiably illicit coins, not a canopy extrapolation to the contents of all associated wallets:

“Of the ShapeShift addresses which receive ETH within three hops from the initial dirty addresses, less than half of the ETH traded through them are tainted. Using the most generous assumptions, this is still only 23.53 percent of the WSJ’s claimed $9 million.”

CipherBlade critiques not only the WSJ’s technical analysis, but also the data itself, which reportedly does not support their conclusions, even if taken at face value. In regard to the Journal’s claims over privacy coin conversion, CipherBlade notes that:

“Of the 5523 ShapeShift addresses in the WSJ’s spreadsheet that actually correspond to trades, 30.38% of the BTC and a mere 5.53% of the ETH that was sent to those addresses were exchanged for Monero.”

CipherBlade notably focused on alleged laundering using Ethereum (ETH) paths — in some cases involving conversion into privacy coins — and did not scrutinize the Bitcoin-related data used by the Journal.

As previously reported, ShapeShift founder and CEO Erik Voorhees rebutted the claims of the WSJ report shortly after its publication, claiming it was “factually inaccurate and deceptive,” and that its authors did not have a sufficient understanding of cryptocurrency technology.

Tags
Aml
Related Posts
Why the latest EU Anti-Money Laundering rules targeting crypto crime make compliance key
When the European Union’s Sixth Anti-Money Laundering Directive comes fully into force on June 3, every company that provides financial services to cryptocurrency customers and businesses will have to comply with much tougher regulations about when and how they identify customers. Strictly speaking, the 6AMLD has been in force since December 2020, but crypto service providers outside the EU have another two months to come into full compliance. This means all e-wallet providers and digital asset exchanges — among others — that have any European customers will need to be registered with EU authorities and perform stricter Know Your Transaction, …
Technology / April 26, 2021
Why ‘Setup’ Matters for Cryptocurrency Privacy
Privacy is a core characteristic of cryptocurrencies. Despite mainstream conception, however, it is not the primary goal of cryptocurrencies like Bitcoin (BTC) or Ether (ETH), and is more of an ancillary benefit of using cryptography. The situation is altogether different for cryptocurrencies that seek to maximize anonymity when transacting on the network. Networks like Monero (XMR) and ZCash (ZEC) have soared in popularity, making up part of the handful of leading cryptocurrencies by market cap based on strong guarantees of privacy. Both blockchains offer users virtually complete privacy assurances — Monero with the CryptoNote technology suite, and ZCash deploying the …
Blockchain / March 17, 2020
Taiwan is Tightening Regulations on Crypto Exchanges, Possible Pressure From China?
On November 2, Taiwan officially tightened anti-money laundering (AML) policies targeted at crypto exchanges, requesting exchanges to monitor and prevent any illegal transaction processed using digital assets. According to the newly drafted Money Laundering Control Act and Terrorism Financing Prevention Act approved by the Legislative Yuan, one of the five branches of the Taiwanese government, the country’s Financial Supervisory Commission (FSC) now has authority over crypto exchanges to ban transactions suspected of being tied to fraudulent operations. Taiwan’s Ministry of Justice (MoJ) released a statement following the approval of the new AML bill, emphasizing that the government is working towards …
Blockchain / Nov. 26, 2018
Government Tracking of Crypto Is Growing, But There Are Ways to Avoid It
Much noise has been made about the untraceable qualities of Bitcoin and other cryptocurrencies. Bitcoin "can be used to buy merchandise anonymously" said early primers on crypto, it offers users the kind of financial privacy that was previously available only from a "Swiss bank account," say more recent commentators. And given its ability to provide people with a layer of anonymity and privacy, it has been smeared by politicians, experts and mainstream journalists alike as a hiding place for almost any hacker, drug dealer, gang member, terrorist or despot you could possibly name (even if cash is still the preferred …
United States / Oct. 7, 2018
‘Tracers in the Dark’ presents a fun crime story — and lesson in privacy
On its surface, Andy Greenburg’s new book, Tracers in the Dark: The Global Hunt for the Crime Lords of Cryptocurrency, is a standard crime story. Fans of true crime podcasts will enjoy the crypto version and get a seat in the Federal Bureau of Investigation van as United States federal agents track down criminals through their crypto transactions. The first story recounted is that of a crooked Drug Enforcement Agency agent who stole funds from the online drug market Silk Road. It also addresses the hunt for Dread Pirate Roberts, aka Ross Ulbricht — Silk Road’s founder. Ross’ operational security …
Blockchain / Jan. 2, 2023