Sponsored content. While crypto allows for fast, borderless transactions, these same features make it attractive for people engaged in illicit activity
Since Bitcoin’s creation in 2009, digital currencies have gone from a niche internet curiosity to a major asset class, attracting attention from individuals, corporations, financial institutions, and governments worldwide.
The UK is now the most active jurisdiction for cryptocurrencies in Central, Northern, and Western Europe. While crypto allows for fast, borderless transactions, these same features make it attractive for people engaged in illicit activity. This year’s Crypto Crime Trends, by blockchain analytics firm Chainalysis, estimated that illicit cryptocurrency transactions hit an estimated $51 billion in 2024.
A real-life example
In November 2024, Roman Sterlingov, a dual Russian-Swedish national, was sentenced to 12 years and 6 months in prison in the US for operating Bitcoin Fog, a cryptocurrency mixing service that laundered over $400 million in Bitcoin between 2011 and 2021.
Sterlingov was convicted of money laundering conspiracy and operating an unlicensed money-transmitting business, with the court ordering him to forfeit $395.6 million and surrender 1,345 Bitcoin—currently valued at over $103 million. The service processed 1.2 million Bitcoin, much of it linked to darknet crimes like drug trafficking and the distribution of child sexual abuse material, and the court ruled his failure to implement AML controls facilitated these illicit activities.
This is just one example of how authorities worldwide are tightening their grip on crypto platforms, increasingly holding businesses accountable for compliance failures. That scrutiny is only going to grow.
What’s being done?
As in the case of Roman Sterlingov, governments are working to strike the right balance between anonymity and enabling legitimate usage versus tracking illicit activity. Techniques have emerged to identify cryptocurrency users, despite the privacy techniques in place, with law enforcement agencies employing blockchain forensics to de-anonymise users.
Regulations are also being amended to require more compliance from cryptocurrency exchanges and institutions to collect customer information and transaction data. As well as changes to UK legislation, the EU’s transfer of funds regulation and FATF’s travel rule require exchanges to collect and share originator and beneficiary data on transactions.
How to protect your firm
Get your policies in order: If your firm has identified cryptocurrency risks in its business-wide risk assessment but hasn’t outlined how to mitigate these risks, now’s the time. Your AML policies, controls, and procedures (PCPs) should cover how your firm deals with digital assets, whether that’s accepting them as payment or identifying them as a source of funds. And as crypto regulations evolve, you’ll need to keep updating them.
Make sure your team is prepared: Staff training is crucial. Your team should know how cryptocurrencies work, what risks they pose, and how to handle them within your firm’s policies. Keeping them informed about emerging trends is the best way to stay ahead.
Strengthen your due diligence: Client due diligence (CDD) is already a core part of legal work, but crypto adds a new layer of complexity. The Legal Sector Affinity Group (LSAG) guidance highlights that professionals should assess whether a matter involves unregulated finance, such as crypto. If it does, you’ll need to dig deeper. For well-known cryptocurrencies like Bitcoin, blockchain explorers can help trace transactions—but if you can’t determine an asset’s origin, that’s a warning sign.
Know when to report suspicious activity: Whether the amounts involved are small or large, if you suspect cryptocurrency is being used for illegal activity, you have a duty to report it. Submitting a Suspicious Activity Report (SAR) to the National Crime Agency (NCA)—or an internal SAR to your MLRO if you’re not the MLRO yourself—helps protect both you and your firm from legal consequences.
Work with specialists: If you’re handling a case involving cryptocurrency, it’s worth consulting blockchain forensic experts or compliance professionals who can provide valuable insights.
Encourage best practices: The more professionals take a proactive approach to crypto compliance, the harder it becomes for illicit activity to slip through the cracks. Educating clients on responsible cryptocurrency use can help mitigate risk across the sector.
By staying informed and taking proactive steps, you can ensure your firm is protected, compliant, and ahead of the curve when it comes to cryptocurrency regulation.
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