Author: Durvankur Manjrekar, School of Law and Public Policy, Avantika University
Abstract
The fast development and evolution of cryptocurrency has created advancement in the opportunity for innovation, but has also led to the emergence of crime like money laundering, illicit finance. Although the unchangeable nature of the blockchain is intrinsically open. Criminals are finding ways to hide their activities using technology and systems that operate outside the blockchain. These hidden activities are done where identification is not required, such as in decentralised finance, privacy coins, and digital wallets. The article is written about how these crimes are changing and how we can prevent them. Also shows how important it is to use smart tools like AI, Blockchain Tracking. How the framework of governments, business and tech expects to work together to keep the crypto world safe. Which still allows us to grow and innovate.
To the Point
There are two sides to cryptocurrency: Innovation and Misuse.
Cryptocurrency has brought a new wave of financial opportunities, which makes investing easier and faster than before. also, with the rapid emergence of these, it comes with worries, especially about how the criminals might use these digital tools to hide or launder money illegally. The features that make cryptocurrency attractive are like fast money transfer, worldwide money transfer access and at some point, its anonymity can also help bad actors avoid detection.
Data tells more balanced stories here in 2024, only 0.4% of the crypto transfers were linked to criminal activity, which is a drop of 50% from the year before. Some of the data also says the number could be as low as 0.14%. This is compared to $3 trillion laundered through traditional banks in 2023, all of that done by the banks alone. Although crypto crime is a problem, it is still small compared to what happens in the regular financial world. By 2024, legitimate use of crypto grew by 56%, reaching more than $10.6 trillion. The growth of crypto is showing that crypto is being adopted and used by more individuals and businesses in positive ways.
While $45 billion in illegal crypto transactions is still a big number, and shouldn’t be ignored it is also proof that this technology is evolving and most of the people are using it the right way stills it got continued surveillance from government, regulators and the tech companies is key to keep the system safe.
Illicit crypto finance, when there is a decrease in illegal crypto transactions overall, but on the other hand, some types of crimes are still very active or even growing. Sanctions evasion continues to be a significant issue, with $14.8 billion in cryptocurrency transferred to blacklisted organizations in 2024. Key platforms involved include Garantex and Nobitex, which prompted authorities like OFAC to impose sanctions on numerous crypto addresses. The incidence of fraud decreased notably to $10.7 billion, with scams such as Ponzi schemes and “pig butchering” becoming increasingly rare; however, investment fraud still resulted in considerable losses of $5.8 billion. Ransomware incidents rose to 5,635 in 2024, and hackers stole $2.2 billion related to cryptocurrencies, often by targeting private keys, with North Korea accounting for about 35% of the stolen funds.
Terrorist organisations like ISKP and Hamas have been turning to cryptocurrencies, particularly stablecoins, for funding and operational activities, all while blending in with standard transaction flows. Additionally, drug sales fueled by cryptocurrency reached $2.4 billion, driven by Russian-language darknet markets and a trend towards smaller, more elusive vendor shops. Despite a reduction in Chinese payments for drug precursors due to tighter law enforcement, criminals are adapting, challenging regulators and cybersecurity experts to keep pace.
The Proof
Criminals are taking advantage of blockchain’s transparency by employing sophisticated on-chain obfuscation tools like mixers, privacy coins, and cross-chain bridges. Mixers such as Blender.io and Sinbad.io obscure users’ crypto assets to hide the origins and destinations of funds, rendering transactions nearly untraceable.
Privacy coins like Monero and ZCash enhance this by encrypting transaction details, making them a preferred choice for those wanting to hide illegal activities. Cross-chain bridges facilitate smooth transfers across various blockchains, creating intricate pathways that dilute the transaction trail. An illustrative case highlights North Korea’s Lazarus Group laundering $900 million using these methods. Although these technologies have legitimate applications, they are misused to bypass law enforcement, necessitating new solutions like multi-hop and cross-chain analytics to address ever-evolving tactics. Additionally, outside the chain, other essential things are also considered. Fiat off-ramping services, which convert crypto to traditional currency, frequently represent weak points in the anti-money laundering framework, with just five services accounting for nearly 72% of illicit withdrawals in 2023. Money mules act as human intermediaries, while unhosted wallets—requiring no identity verification—allow criminals to transfer funds discreetly, beyond regulatory scrutiny. These issues are driving global regulatory initiatives, such as FinCEN’s revised travel rule and an increasing demand for enhanced monitoring at the intersection of crypto and fiat.
Exacerbating these challenges are DeFi platforms and darknet markets that take advantage of decentralisation and anonymity. With their open and pseudonymous designs, DeFi protocols are increasingly manipulated through strategies like flash loans, contract exploitation, and liquidity pool misuse for laundering purposes. Hackers have appropriated nearly $7.6 million daily from DeFi projects, often evading capture due to the complexity of these systems. Simultaneously, darknet markets—digital black markets for illegal goods—persist in using cryptocurrencies to escape law enforcement. Despite the dismantling of platforms like Empire Market, criminal networks are migrating to smaller, decentralised vendors, complicating detection efforts. Crypto transactions in these markets have surged, particularly within Russian-language platforms.
This decentralisation disperses risk, hampers law enforcement, and flourishes in a regulatory grey area. As criminals rapidly adapt and technology evolves at breakneck speed, regulators and analysts must depend on real-time blockchain monitoring and more sophisticated enforcement strategies to stay ahead.
Cases
$225 Million Cryptocurrency Investment Fraud Seizure (US Secret Service/FBI). The U. S. Department of Justice. Possibly the Attorney’s Office started a legal action to take away more than $225 million in digital money, which is the biggest amount of digital money ever taken by the U. S. Department of Justice. Secret Service. Possibly, the money that was used for illegal crypto investment fraud was connected to complex blockchain-based schemes that laundered money. They deceived individuals into putting money into fraudulent cryptocurrency ventures. The money was spread out across many different wallet addresses to hide where it came from, who controlled Law enforcement was able to find the money that was stolen using new technology that looks at the blockchain and old ways of investigating. The sentence means that many people lost a lot of money because of bad deals with digital money in 2024. This shows how serious the problem is for the public and how well the police are catching the bad guys who do bad things with digital money. KuCoin AML/KYC Violations and Enforcement Action Possible – KuCoin, a big crypto exchange, got in trouble with the law in January 2025. It had to pay $300 million because it did not do a good job of stopping bad people from using its service to hide their money or identity. – KuCoin did not follow the usual rules to check if the people buying and selling things were doing it legally. – Investigators found out that KuCoin let people do bad things by not checking if they were following the rules. – KuCoin did not do the Possible KuCoin, a cryptocurrency exchange based in the US, did not need to register as a money transmitter because it did not handle money directly. It had over 1. 5 million customers and made $184. 5 million from their transactions. The company had to stop working in the U. S. for two years, which was a big problem for its business. Possible KuCoin had two of its founders arrested and banned from running the company. This case underscores a substantial shift towards stricter regulatory enforcement, establishing that inadequate AML/KYC measures will no longer be tolerated, and that crypto platforms must comply with the obligations of functioning within well-regulated financial frameworks.
Conclusion
Cryptocurrency has changed the world of finance quickly and easily, with new and exciting ideas. The crypto industry has made progress, but bad people are getting smarter and finding ways to do illegal things with it. Criminals are always changing their ways to avoid being caught and to keep track of where their illegal money comes from and goes to. They use different kinds of online systems and coins that are not controlled by anyone and that protect their privacy. They also use hidden parts of the internet that are Some ways to hide dirty money are mixers, cross-chain bridges, and unhosted wallets, which are common. Two of the platform DeFi and peer-to-peer models make it difficult to find and control money. The situation is changing. The following are some examples of how regulators have caught and punished bad actors who use blockchain technology to do illegal things, such as stealing money or hiding their identity. These cases show that the rules are getting stricter and that using data from blockchain and other sources can help investigators find the truth. The less illegal things people do with crypto compared to the more legal things they do with crypto shows that crypto is getting more organized and not more chaotic. We need to be careful. Rewritten To address the challenges ahead, a comprehensive and collaborative approach is required. This involves leveraging technology, combining the expertise of regulatory bodies, utilizing AI-powered surveillance, and harnessing the innovation potential of the private sector. We can only make sure that digital finance grows in a good way by working together.
FAQS
Q1: Is cryptocurrency primarily used for illegal activities?
No. Illicit use makes up only around 0.4% of crypto transactions in 2024, far less than in traditional finance. Criminals still prefer cash, real estate, or offshore accounts for laundering money.
Q2: How are regulators addressing crypto anonymity?
They enforce rules like the FATF’s Travel Rule, requiring exchanges to share sender/receiver details for large transactions. VASPs must also follow KYC and CDD measures, and anonymous services like mixers face increasing crackdowns.
Q3: What is the Crypto Travel Rule and why is it important?
It requires VASPs to collect and share info on parties involved in crypto transfers over ~$1,000. This boosts transparency, helping to trace illicit funds and reduce financial crimes.
