Crypto-Enabled Money Laundering

A suitcase of cash was once the stock‑in‑trade image of money laundering, but nowadays it’s less tangible and far more insidious: a tangled web of wallet addresses on a blockchain. Crypto‑enabled laundering is no longer a niche concern reserved for the fringes of financial crime, it’s swiftly becoming a mainstream risk for businesses and a growing preoccupation for regulators across the UK and EU. In this article, we’ll unwind exactly how such laundering schemes are evolving, from NFTs to mixers, and explore the bold, tech‑driven measures that the EU’s new Anti‑Money Laundering Authority (AMLA) and the UK’s Financial Conduct Authority (FCA) are deploying to stay ahead of the game.

From Silk Road to Stablecoins

The saga of crypto‑enabled money laundering began in earnest with the Silk Road dark‑web marketplace (2011–2013), where Bitcoin was the currency of illicit choice. It instantly demonstrated how digital currencies could revolutionise cross‑border crime. As regulators surged to keep pace, criminals shifted tactics, embracing privacy coins such as Monero and Zcash that cloak transaction data more effectively.

Today, laundering has evolved yet again: sophisticated actors exploit stablecoins like USDT to transfer value seamlessly across borders and evade sanctions, as the UN has documented in emerging “pig‑butchering” scams. Meanwhile, mixers and bridges, tools like Tornado Cash’s ‘crypto washing machine’, fragment and obscure illicit funds, even as largest ones face mounting legal pressure.

The world of NFT laundering adds another twist: criminals engage in wash‑trading cartoon apes and digital art collections, bidding them up artificially to sanitise dirty money. The throughline? Crypto-laundering is never static and mutates rapidly, poly-layered and endlessly inventive.

Washing the Blockchain Today

In the modern laundering playbook, criminals have mastered blockchain-based methods that are fundamentally different from traditional tactics. They favour mixing or tumbling services which can be thought of as crypto “washing machines” that blend illicit funds with clean ones to obscure the money trail. A notorious example is Tornado Cash, which reportedly laundered over $7 billion, including funds stolen by North Korea’s Lazarus Group, before being sanctioned and disrupted by authorities.

Next comes DeFi “layering”, where illicit actors run funds through multiple decentralised protocols, exchanging, staking or swapping to create a tangled web of transactions. This complexity makes it difficult for compliance teams to trace origins or destinations.

Then there’s chain-hopping where criminals move assets across different blockchains via bridges, like Ethereum to Tron, to further blur the transaction history. This tactic is increasingly popular due to its speed and opacity.

Even gaming environments aren’t immune. Launderers exploit gaming tokens, in‑game assets and microtransactions, converting dirty money into virtual goods before cashing out, often through complex chains of small trades. Adding a futuristic twist, emerging tools now leverage AI to automate “smurfing” patterns. This means splitting illicit funds into smaller parcels and...

Read the full article in The Compliance Digest!