The US government has charged two Chinese nationals, Tian Yinyin and Li Jiadong for allegedly conspiring with North Korean state-sponsored hackers to steal millions of dollars’ worth of digital money from cryptocurrency exchanges. Sanctions experts told the United Nations in August 2019 that apart from using widespread and increasingly sophisticated cyber-attacks to siphon as much as $2 billion from crypto exchanges and other financial institutions, North Korea also use the money to fund its weapons program. The US in 2018 alleged that the hackers working for Kim Jong-un pilfered around $250 million worth of cryptocurrency from an unnamed South Korean exchange. Much of that money, mostly Bitcoin, apparently landed in accounts at different exchanges held by Tian and Li, who converted it into fiat currency.
To clear these hurdles, the North Korean hackers sent the stolen Bitcoin through a long chain of transfers to new addresses, each of which peeled a small piece from the whole and sent it to yet another address, often associated with an account at an exchange. According to the government, the North Koreans engaged in “hundreds of automated transactions” with new Bitcoin addresses to create so-called “peel chains” leading to four different exchanges, making them hard to track. Chief Economist at Chainalysis, a blockchain analytics firm, Philip Gradwell said when peel chains get long and particularly when money launderers generate new ones from the original peel chains, peel chains can become complicated and it is difficult to determine when money actually changes hands and when it is being transferred into another address.
The use of exchange to launder stolen cryptocurrency has become a growing menace as Chainalysis revealed that criminal entities moved $2.8 billion in Bitcoin to exchanges in 2019, a sum increased by about $1.8 billion in 2018.