Crypto for nukes puts money laundering in the spotlight

By Ian Silvera

As any other long-time listener of the equally alarming and interesting Arms Control Wonk podcast can tell you, there are several pariah states who use dubious and somewhat ingenious schemes to fund their nuclear missile programmes.

Thanks to the expertise of so-called ‘open source intelligence experts’ like Professor Jeffrey Lewis, who rigorously scan satellite imagery and other publicly available materials, we can even tell who designed these facilities and make good predictions as to when tests did or didn’t take place - a clear patch on an otherwise snowy mountain range could be an indication of rocket burn, by way of example.

With the looming threat of further international sanctions, all the while trying to keep Sun Tzu’s element of surprise, it can be somewhat of a big cat and mouse game, with weapons systems being moved overnight and stored in ways that would put any James Bond villain to shame.

The money, however, has always been harder to hide and gather, especially for the hermit nation of North Korea. It has long been suspected that Pyongyang has been behind scores of ransomware attacks, with industrial-scale hacking used to help fund the East Asian nation. Now, the UN Security Council has claimed that Kim Jong-un’s men and women are also behind crypto hacks, using ill-gotten Bitcoin, Ethereum and other cryptocurrency to build more nukes.

“Cyber-actors stole more than $US50 million ($70 million) between 2020 and mid-2021 from at least three cryptocurrency exchanges in North America, Europe and Asia, probably reflecting a shift to diversify its cybercrime operations,” the group reportedly warned.

The whole episode puts money laundering back in the spotlight for crypto, especially as DeFi or decentralised finance is in the ascendancy. Chainanalysis has reported a 1,964% year-over-year increase in the total value of cryptocurrency laundered through these types of protocols, totalling $900m in 2021.

The perennial issue for the DeFi industry is whether to adopt mainstream/established mechanisms or stick with Satoshi Nakamoto’s vision of building an alternative financial system. A privacy project in the crypto space, which shall remain unnamed, recently raised funds on a platform asking for Know-Your-Customer procedures.

Putting the fantastic irony of this aside, this is still very much a sector finding its identity and clearly soul searching as it grows.