ShapeShift Requests CipherBlade Blockchain Analysis to Question WSJ’s Crypto Money Laundering Facts
Back in September 2018, Wall Street Journal article How Dirty Money Disappears Into the Black Hole of Cryptocurrency was published. The article discussed ShapeShift, a crypto conversion platform and claimed that it had facilitated money laundering in the tune of $9 million by a “parade of suspected criminals.”
ShapeShift countered by requesting that CipherBlade, a blockchain analytics firm, recreate the 2018 report. The platforms own analysis determined that the original article was overstated and that, in fact, less than $3 million of the transactions on ShapeShift featured laundered funds.
The difference, however, may be accounted by on the coins that CiperBlade decided to focus on. Unlike the original report, it focused on tainted coins, rather than the total value in an affiliate’s wallet or account. The CipherBlade report stated,
“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.”
CoinDesk reached out to the WSJ and asked it about the investigative process, in which it responded,
“An analysis looking at individual tainted ethereum coins, rather than tainted wallets, would be a different project than what the Journal embarked on, and one we can’t comment on because we have not reviewed it.”
There are experts, as well, who stated that there is no clear indication as to how much as been laundered through the platform. For example, Pawel Kuskowski, CEO of Coinfirm, stated
“If you don’t know the underlying clients, how do you know? This is why you have KYC in the first place, to understand the profile.”
Kuskowsi was then asked on whether it is better to use the whole wallet or the tainted coins as a metric, he responded that the truth may be in between. A complex analysis of the risks related to those involved in the transactions and other rules can together make up the determination of what has been laundered.
Coinfirm’s report on the matter described ShapeShift as a “high risk” platform when it comes to money laundering and compliance. Kuskowski noted that it can take months to reduce such risk.
Moreover, there must be efforts to de-risk in place and such efforts often stem from improving or changing policies and being cooperative with law enforcement. Veronica McGregor, the platform’s Chief Legal Officer, stated
“Among law enforcement, ShapeShift is regarded as a very helpful and cooperative player, Just because we started implementing those KYC procedures does not mean that we didn’t already have procedures in place to detect fraud and bad wallet addresses and theft, things like that.”
The platform has gathered a team of external consultants, it overhauled its compliance, and it is also working with several independent analytics firms. Moreover, CipherBlade’s CEO and co-founder stated that even with the platform’s efforts, at the heart of it, the WSJ findings were “grossly exaggerated.” He added,
“We did find around $3 million, which isn’t a great look for ShapeShift,” But it is significantly smaller than what the Wall Street Journal reported.”
As for ShapeShift, it is still displeased with the original report.