This summer season, Roman Storm, the co-founder of notorious crypto mixer Twister Money, was convicted in New York federal courtroom of conspiring to function an unlicensed money-transmitting enterprise.
Prosecutors celebrated Storm’s conviction as a serious victory within the combat towards crypto cash laundering, however the actuality is extra difficult.
For years, regulators have handled mixers like Twister Money as the final word cash laundering menace. Nameless, opaque, and seemingly tailored for criminals, it’s simple to consider these instruments are driving nearly all of crypto cash laundering. However the numbers inform a distinct story.
The preferred crypto cash laundering engines aren’t money mixers, they’re centralized exchanges: huge, brand-name buying and selling platforms which can be licensed, regulated, and brazenly related to the worldwide banking system. These exchanges seem extremely regulated and properly supervised, touting compliance groups and “Know Your Buyer” (KYC) verification checks; nevertheless, in apply, they permit felony exercise to fester, functioning as the first on and off-ramps for soiled crypto.
To actually fight crypto cash laundering, regulators have to focus their efforts on bolstering KYC necessities, and policing the centralized exchanges the place most cash laundering takes place.
Centralized exchanges are laundering hubs
All through 2024, nearly all of illicit crypto funds had been routed to centralized exchanges, based on a 2025 Chainalysis report.
Centralized exchanges are the place criminals flip to transform their soiled crypto into spendable money. They’re the ultimate step in most laundering schemes: the purpose the place illicit funds are swapped for {dollars}, euros, or yen and moved into actual banks.
Criminals gravitate to those platforms for a similar purpose reputable merchants do: liquidity, velocity, and world attain. A mixer like Twister Money can obfuscate funds on-chain, however it may’t flip them into money and transfer them right into a checking account — solely an alternate with deep liquidity and fiat connections can do this. Usually, centralized exchanges depend on compliance packages which can be under-resourced, poorly enforced, or undermined by permissive jurisdictional guidelines, permitting illicit transactions to slide by the cracks.
Excessive-profile enforcement instances have uncovered simply how systemic this drawback is. The U.S. Justice Division’s 2023 settlement with Binance revealed that the outstanding alternate had processed transactions tied to ransomware, darknet markets, and sanctioned entities. The alternate has since boosted compliance efforts, spending $213 million on the division in 2023. BitMEX was equally sentenced to a $100 million nice after it pleaded responsible to Financial institution Secrecy Act violations (BitMEX’s founders and former executives Arthur Hayes, Ben Delo and Samuel Reed pleaded responsible to associated costs and had been later pardoned by U.S. President Donald Trump.).
Focusing regulatory vitality on mixers whereas letting exchanges stay the first fiat gateways for illicit funds is like locking the home windows whereas leaving the entrance door vast open.
KYC isn’t the silver bullet we fake it’s
Know Your Buyer (KYC) guidelines are the cornerstone of crypto compliance. On paper, they promise to maintain dangerous actors out by verifying identities, screening transactions, and flagging suspicious exercise. In actuality, they’re usually a box-ticking train, a skinny veneer of diligence that offers regulators the phantasm of safety whereas refined criminals discover methods round it.
Weak KYC processes are one drawback. Some exchanges settle for low-quality id paperwork or depend on automated methods that may be tricked with deepfakes or stolen knowledge. Others outsource their compliance completely, turning it right into a contractual checkbox moderately than an energetic safeguard. Even when the method works, it may’t cease decided launderers from utilizing mules, straw accounts, or shell corporations to move preliminary checks.
However the greater flaw is structural. KYC is designed to vet particular person accounts, to not detect laundering patterns at scale. A sanctioned entity would possibly by no means open an account in its personal identify. As an alternative, it’s going to unfold transactions throughout dozens of intermediaries, routing funds by layers of seemingly reputable accounts till they land at an alternate that converts them into fiat. By the point the funds hit the compliance group’s radar, they’ve usually handed by so many palms that the paper path feels clear.
Because of this enforcement actions towards main exchanges preserve revealing the identical uncomfortable fact: compliance isn’t failing as a result of the foundations don’t exist; it’s failing as a result of the methods implementing them are reactive, under-resourced, and straightforward to recreation.
Hardening centralized exchanges towards cash laundering
Centralized exchanges will all the time be enticing targets for launderers as a result of they sit on the junction of crypto and fiat. That makes enforcement not only a matter of coverage, however of design. Actual progress means transferring past symbolic KYC checks to methods that detect laundering patterns in actual time, throughout accounts, and throughout jurisdictions.
That begins with resourcing compliance groups to match the size of the platforms they monitor. It means closing authorized loopholes that allow exchanges function from permissive jurisdictions whereas serving high-risk markets, and holding executives personally accountable for fraud when controls fail. Regulators should demand, and confirm, that exchanges share actionable intelligence with one another and with regulation enforcement, so criminals can’t merely hop from one platform to a different undetected.
That is a lot more durable than concentrating on cash-mixers.
None of this can be simple, however it’s the one method to sort out laundering the place it really occurs. Till exchanges are hardened on the structural stage, enforcement actions will stay reactive, and billions in illicit funds will preserve slipping by the gates.