A single click, a digital wallet, and a million dollars lost – this is all it takes for new-age fraudsters for digital laundering. In 2024 alone, Chainanalysis reported a 12% increase in the flow of illicit funds through decentralised exchanges.
Over the past few years, money launderers have found new techniques in the attempt to defraud individuals and organizations. Money laundering has continued to take numerous forms, especially with the digital evolution. It may be a web of tokens, cross-chain tools, and digital ecosystems to disguise illicit funds, which challenges even the most advanced compliance systems.
From the Silk Road to Blockchain Analytics
In the early 2010s, the Silk Road marketplace became a multi-million-dollar site where Bitcoins were used to buy and sell illicit items. Back then, laundering was simpler as users could launder the money through privacy wallets.
The turning point came when the US law enforcement agent uncovered a hidden investigative asset – the blockchain, which is Bitcoin’s public transaction ledger. Over the next decade, the laundering landscape shifted. The rise of altcoins, decentralized exchanges (DEXs), and now cross-chain platforms created a complex environment where money could move freely, leaving the regulators behind.
Methods of laundering in a multi-chain world
Laundering has evolved from just simple offshore accounts to on-chain anonymity. In this new ecosystem, fraudsters leverage digital assets to hide their traces, and these include:
- Cross-Chain Bridges. Criminals move illicitly obtained funds via multiple blockchains. This complicates the tracking because investigators must now trace movements in various public ledgers.
- Stablecoins. They offer a convenient platform for launderers to store and transfer value without volatility. Tracking them becomes increasingly complex as many stablecoins operate on multiple blockchains through private wallets.
- Decentralised Platforms (DeFi) Platforms. DeFi platforms often lack proper Know Your Customer (KYC) and Anti-Money Laundering (AML) protocols, which give fraudsters an easy way to anonymously swap coins.
- Non-Fungible Tokens (NFTs) and Digital Art. These can be used to launder money through inflated sales or by buying and selling them between one’s own multiple wallets. This creates the appearance of legitimate value and obscures the source of funds.
- Gaming and Virtual Assets. Virtual game tokens, skins, and collectibles can be bought and sold in multiple global marketplaces, offering fraudsters an opportunity to launder money.
Case Study – The Lazarus Group Scam
In what is believed to be one of the largest cryptocurrency thefts, North Korea’s Lazarus Group hacked the Ronin Network, in which over US$600 million was stolen. The fraudsters managed to launder money through mixers like Tornado Cash and across cross-chain bridges to leave no trace behind. Later, authorities traced much of the stolen crypto through blockchain forensics.
The Lazarus case proved that even state-sponsored groups exploit Decentralized Finance (DeFi) freedom for large-scale laundering.
The way forward
The expansion of crypto laundering has significant implications for financial stability and the integrity of the global financial system. What was once a niche concern is now directly intersecting with the financial system. While blockchain’s transparency offers the potential for stronger oversight, its decentralised nature challenges the traditional compliance systems.
Regulatory bodies like the Financial Action Task Force (FATF), the European Union’s AMLD5, and others are pushing towards stronger Know Your Customer (KYC) and Anti Money Laundering (AML) standards in the crypto sector. Many jurisdictions now require crypto firms to follow the “Travel Rule,” which helps to trace the transactions across borders.
Want to know how fraudsters launder money across borders? Read our article to know more.
Amid these changes, specialised solution providers who provide technology-driven compliance tools are supporting institutions to keep pace with the evolving global regulations. At the end, the fight against crime through crypto is about preserving trust in digital finance. As the world continues to move toward a tokenised economy, it becomes crucial to balance innovation with accountability.
Write to our experts to know more about how Fios Compliance can help mitigate such risks!
Conclusion
As digital assets continue to go deeper into global finance, the line between innovation and risk continues to blur. The challenge now is not to slow down innovation but to mature compliance systems. Strengthening due diligence, ensuring data transparency, and using intelligent monitoring can help build a financial ecosystem where growth and governance move together.
The question prevails – Can innovation and accountability truly coexist in a tokenised world?
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