Money Laundering Through Cryptocurrency
Law
๐ What is Money Laundering through Cryptocurrency?
Money laundering is the process of concealing the origins of illegally obtained money, typically by passing it through complex transfers or investments.
With cryptocurrency, this is done through:
Layering: Rapid movement between crypto wallets to hide the source
Mixing services: Combine funds from multiple users to obscure origins
Using privacy coins: Cryptos like Monero, which hide transaction details
Offshore exchanges: Operating in jurisdictions with weak oversight
NFTs & DeFi protocols: Emerging tools to launder money through tokens
โ๏ธ Key Legal Principles
Illicit source of funds: Money must come from crime (fraud, drugs, etc.)
Intent to conceal or disguise the nature, location, source, ownership, or control
Use of crypto platforms to anonymize or transfer criminal proceeds
Now, letโs look at landmark real-world case law.
โ๏ธ Landmark Cases on Crypto Money Laundering
1. United States v. Harmon (2020โ2022)
Court: U.S. District Court, Washington D.C.
๐น Facts:
Larry Harmon ran Helix, a Bitcoin "mixer" (service to obfuscate transactions). Authorities accused him of laundering over $300 million in crypto, mostly from darknet markets like AlphaBay.
๐น Issue:
Are crypto mixing services criminal tools if used knowingly to launder money?
๐น Held:
Harmon was indicted and eventually pleaded guilty. The court confirmed that operating a mixer with knowledge of criminal use constitutes money laundering and operation of an unlicensed money service business (MSB).
โ Principle:
Crypto mixing + criminal knowledge = money laundering
2. United States v. Sterlingov (2021)
Court: U.S. District Court for D.C.
๐น Facts:
Roman Sterlingov operated Bitcoin Fog, another major mixer, laundering around $336 million.
๐น Issue:
Was the mixer intentionally set up to enable money laundering?
๐น Held:
The case is ongoing, but prosecutors argue he knowingly created infrastructure to launder criminal proceeds, using blockchain tracing to build the case.
โ Principle:
Even if anonymous, blockchain records can trace laundering with advanced forensics.
3. R v. Nadarajah and Suresh (UK, 2022)
Court: Southwark Crown Court
๐น Facts:
The defendants laundered funds from an investment fraud through Bitcoin and gift cards. They used multiple wallets, peer-to-peer exchanges, and cash-out services.
๐น Held:
They were convicted of converting criminal property under the Proceeds of Crime Act 2002, with the judge noting the "sophisticated use of cryptocurrency" to hide fraud proceeds.
โ Principle:
UK courts treat crypto laundering like traditional laundering, with similar sentencing guidelines.
4. U.S. v. Munchel (2021)
Court: U.S. District Court, Tennessee
๐น Facts:
In the wake of the Capitol riots, prosecutors discovered some participants had funded their actions using crypto donations, some of which came from foreign anonymous sources.
๐น Held:
This case didnโt result in crypto laundering charges directly, but highlighted how crypto transfers can be monitored and used to support investigations.
โ Principle:
Crypto's anonymity can be pierced, and transfers linked to criminal intent may raise money laundering implications.
5. China: Wu Xinhua Money Laundering Case (2020)
Court: Intermediate Peopleโs Court, Zhejiang Province
๐น Facts:
Xinhua was arrested for laundering drug trafficking money through Tether (USDT) and exchanging into local fiat. He used multiple exchange accounts and over-the-counter trades.
๐น Held:
The court found him guilty of money laundering, sentencing him to prison and seizure of crypto assets.
โ Principle:
Chinese courts now recognize crypto as a tool of laundering, and prosecute it under standard anti-money laundering laws.
6. India: Enforcement Directorate v. WazirX Exchange (2022โ23)
Authority: Enforcement Directorate (ED)
๐น Facts:
ED investigated WazirX, a major Indian exchange, for allegedly facilitating $350 million in laundered funds via crypto transfers abroad through non-KYC accounts.
๐น Held:
Investigation led to seizure of assets and stricter KYC compliance orders. No conviction yet, but significant as a regulatory case.
โ Principle:
Lack of KYC/AML compliance in crypto platforms can expose them to aiding and abetting money laundering.
7. United States v. Binance & CZ (Changpeng Zhao), 2023โ2024
Court: U.S. Federal Court, Seattle
๐น Facts:
The U.S. Department of Justice fined Binance $4.3 billion and CEO CZ personally pled guilty for willfully failing to implement AML programs, allowing laundering of terrorist funds, child exploitation proceeds, and ransomware payments.
๐น Held:
CZ resigned and faced sentencing; Binance agreed to monitor reforms.
โ Principle:
Failure to enforce anti-laundering safeguards on crypto platforms = criminal liability
โ Summary Table
| Case | Key Issue | Principle |
|---|---|---|
| Harmon (Helix) | Crypto mixing service | Mixers used knowingly = laundering |
| Sterlingov (Bitcoin Fog) | Anonymous service | Blockchain forensics can trace laundering |
| Nadarajah (UK) | Fraud โ Bitcoin | Crypto = โcriminal propertyโ under POCA |
| Munchel (US) | Crypto donations | Crypto ties to criminal acts can be traced |
| Wu Xinhua (China) | Drug money via USDT | OTC trades with illicit crypto = laundering |
| WazirX (India) | Exchange misuse | Non-KYC exchanges risk aiding laundering |
| Binance/CZ (US) | AML violations | No AML controls = liability for laundering |
๐ Key Takeaways
Crypto isn't beyond the law โ it's traceable.
Intent and awareness of laundering are essential for conviction.
Platforms and individuals both can be liable.
Global jurisdictions are rapidly updating laws to regulate crypto AML.
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