Are anti-money laundering regulations about to give crypto a green light, with platforms being exempt from liability?
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Are anti-money laundering regulations about to give crypto a green light, with platforms being exempt from liability?
If it's cryptocurrency, then it's not money laundering.
Navigating Web3 tides with focused insightsAuthor: JP Koning
Translation: Luffy, Foresight News
Recently, U.S. Deputy Attorney General Todd Blanche issued a memorandum to internal staff stating that the cryptocurrency industry is "critical to national economic development." As a result, employees were instructed not to target crypto platforms—such as exchanges and mixers like Tornado and ChipMixer—based on the actions of "end users."
What exactly does "end user behavior" mean? Blanche elaborates later in the memo. He specifically references how drug cartels involved in fentanyl trafficking commonly use cryptocurrencies—a well-known fact. For instance, Tether is frequently used as a payment method in fentanyl transactions. However, the Department of Justice (DOJ) clarified that while it will continue pursuing financial crimes by drug cartels, terrorist organizations, and other illicit enterprises, it "will not take action against platforms used by these criminal groups to carry out illegal activities."
This stance contradicts long-established financial laws worldwide. Under traditional financial regulations, financial institutions are typically held accountable for the "actions of end users." When criminals exploit these institutions to "conduct illegal activities," the institutions themselves can be prosecuted—this is legally defined money laundering.
Money laundering is a two-sided crime. On one side are the criminals with dirty money; on the other are their counterparts—the financial intermediaries (banks, crypto exchanges, remittance platforms) that process illicit funds. Both sides can be prosecuted. Last year, TD Bank was sued due to clients linked to drug cartels, reinforcing the principle that financial service providers are responsible for their users' crimes.
The same applies to sanctions evasion. One party is the sanctioned entity; the other is the financial platform facilitating circumvention. Both can face prosecution.
If, as Blanche implies, crypto platforms will no longer be targeted over "end user behavior," this effectively means the second half of money laundering or sanctions violations will no longer be treated as illegal—at least when crypto platforms are involved. So if a drug cartel deposits dirty money into an exchange like Binance, only the cartel will be pursued, not the exchange.
In effect, crypto technology has been granted a privileged pass exempting it from prosecution for money laundering. Observers can easily infer that crypto platforms will loosen compliance measures, knowing they won’t be sued—and this, in turn, will attract more criminals to exploit their services.
The memo provides further details. Ongoing cases against Tornado Cash and ChipMixer are likely to be dropped, as the memo explicitly states the DOJ will no longer target mixing services. Tornado is a smart contract-based mixer whose infrastructure largely runs via automated code, whereas first-generation mixers like ChipMixer operate entirely through manual intervention. Due to a series of criminal convictions, ChipMixer’s user base had nearly disappeared—but with the threat of prosecution now lifted, they are expected to re-emerge.
The memo also prohibits DOJ attorneys from targeting "offline wallets," which likely refers to "non-custodial wallets," particularly those holding stablecoins. Stablecoin users can hold tokens like USDT or USDC in personal crypto wallets in a non-custodial manner, or return them to the issuer for redemption into real dollars—in which case the arrangement is "custodial." This appears to mean that if criminals use non-custodial stablecoins, the issuers themselves will not become targets of prosecution. If this policy encourages fentanyl traffickers to use stablecoins, it would truly be a "brilliant" strategy.
This de facto decriminalization of crypto money laundering validates many existing practices within the crypto ecosystem. For example, just last week I reported that stablecoin issuers like Tether and Circle allow the sanctioned Russian exchange Garantex to hold their stablecoins. These issuers seem to believe it's legal to provide access to illicit end users like Garantex. Now, the government appears to confirm their interpretation by ceasing to target non-custodial wallets over "end user behavior."
Having examined some of the immediate legal and technical consequences of this decision, it’s worth asking: who stands to benefit from this sudden policy shift? Clearly, most people will be worse off.
The following is purely speculative, but this policy may aim to appease and reward several key groups:
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Libertarians who voted for Trump and bizarrely believe money laundering should not be a crime.
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Crypto entrepreneurs in San Francisco who want to build financial platforms at low cost, avoiding the expense of implementing robust compliance systems to deter criminal usage. These entrepreneurs also hope their crypto platforms can gain access to bank accounts—something banks have previously resisted due to high money laundering risks. With crypto now granted immunity, banks no longer need to worry. Since these entrepreneurs support Trump politically and financially, forming a core part of his inner circle, this could be seen as a payoff.
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Trump himself, who appears intent on building a patronage and bribery system akin to Putin’s, which requires financial infrastructure friendly to money laundering. The DOJ memo may be an early step toward establishing such a system.
In the long run, traditional banks and other financial service providers might also benefit. With crypto-based financial activity now freed from a major legal constraint, every financial provider embracing crypto will be incentivized to participate. This could mean converting your Wells Fargo dollar savings account into a blockchain-based dollar savings account. Such a shift would allow banks and fintech firms to reduce compliance costs and increase profits.
Once the entire financial sector transforms by exploiting this loophole, laundering money for criminals will no longer be a crime. And since the DOJ will no longer prosecute mixers, full anonymity will become available to everyone.
From a public welfare perspective, this memo is disastrous. Like theft and fraud, money laundering is unethical and deserves punishment. Exempting a segment of society from legal accountability erodes public trust in government and the financial legal system.
More broadly, anti-money laundering laws serve as a critical defense against numerous other crimes. Because these laws exist, the financial system actively resists so-called "upstream crimes" such as robbery, human trafficking, and corruption, making them harder to commit. This deterrent effect prevents many potential offenders from leaving the legitimate economy. Once these laws are dismantled, the temptation to commit crime will rise dramatically.
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